Case: Citibank N.A Vs. Standard Chartered Bank

Citi Bank is a corporation incorporated under the laws of United States of America, carrying on business of banking, inter alia, at Sakhar Bhavan, Nariman Point, Bombay. SCB in a bank incorporated by royal charter under the laws of England and Wales. CMF is represented through its trustees. CMF was made a party respondent along with its trustees in Suit No. 22 of 1994 filed by SCB initially, they were given up on the application of SCB on 10th July, 1995. CMF has been made a party in Civil Appeal No. 7941 of 1995 (in Suit No. 22 of 1994), though as stated above it had been deleted from the array of parties in the suit at the instance of the plaintiff SCB.6. On 27th May, 1991, CMF purchased certain securities (11.5% GOI 2009) Bonds) from the Bank of Karad. Citi Bank purchased from CMF 11.5% GOI 2009 bonds of the face value of Rs. 44,93,20,414.17 p. for Rs. 44.8505 crores on the same day. The total consideration was paid by the Citi Bank to CMF. CMF handed over to the Citi Bank their Subsidiary General Ledger (for short SGL) Transfer Form, duly executed on their behalf to enable the Citi Bank to get the said securities duly transferred to their name in the SGL maintained by the CMF with the Reserve Bank of India. CMF maintains with the Public Debt Office (for short PDO) of the Reserve Bank of India an account into which its purchase of the Government of India Securities were credited and whenever it desires to sell any Government securities, instead of physically handling the papers, it merely issues a SGL transfer form which can roughly be equated to a non-negotiable account payee cheque in favour of the transferee. A SGL has to be issued in favour of a named person and no blank SGL transfer form can be issued under the Regulations governing the use of SGL transfer form framed by PDO of the Reserve Bank of India.7. Citi Bank on 27th May, 1991 presented the SGL transfer form to the Reserve Bank of India but the same was dishonoured for want of insufficient balance. An endorsement to that effect was made on the SGL form. It was presented once again on 6th June, 1991 when it was again dishonoured for want of balance.8. On 18th & 19th September, 1991, Citi Bank agreed to sell to SCB 11.5% GOI 2009 Bonds of the face value of Rs. 42 crores and Rs. 8 crores respectively against receipt of the purchase price paid by the SCB to the Citi Bank. Since the bonds were not ready, the Citi Bank issued two Bankers Receipts (for short BRs) Nos. 0912 621480 and 0912611410 for the said Bonds with the understanding that the Bonds will be delivered when ready in exchange for the duly discharged BRs and in the mean time the BRs will be held on account of the SCB. A seller issues a BR acknowledging its liability to deliver the purchased securities, when purchaser has made the payments. The exact term mentioned in the BR is asSecurities /Debentures/Bonds of face value of Rs. 42,00,000.00 will be delivered when ready in exchange for this receipt duly discharged and in the meantime the same will be held on account of Standard Chartered Bombay.By a letter dated 19th September, 1991, the SCB requested the Citi Bank to deliver to the SCB, SGL forms issued by CMF in exchange for the two BRs issued by the Citi Bank. Accordingly, the Citi Bank delivered to the SCB, the (1) SGL form which had been issued by CMF in its favour of the face value of Rs. 44.8505 crores and (2) their own SGL form of the face value of Rs. 5,41,95,000/- in exchange of the two BRs making it equivalent to Rs. 50 crores i.e. the amount advanced by SCB for purchase of the GOI Bonds. SCB delivered to the Citi Bank, the two BRs duly discharged which had been earlier issued by the Citi Bank in favour of SCB. The letter dated 19th September, 1991 written by SCB to the Citi Bank is to the followinghereby enclose two BRs (1) 42 crores (2) 8 crores issued by you of 11.5% GOI 2009 on 18.9.91 & 19.9.91 respectively. We now request you to give us SGLs of Canbank Mutual Fund in exchange of theadded)10. Allegedly on 8th October, 1991 SCB addressed a letter to the CMF requesting CMF to issue a fresh SGL transfer form in its name in lieu of SGL transfer form received by the SCB from the Citi Bank. CMF in their written statement in Suit No. 22 of 1994 denied having received the said letter. The letter was attached by the SCB with its plaint in Suit No.22 of 1994 and this fact was mentioned in the plaint as well. Another important fact which needs to be noticed is that on 25th November, 1991 SCB received the interest due as on 19th November, 1991 of the said bonds vide cheque No. 944073 dated 25th November, 1991 in the sum of Rs. 2,56,33,787.50 p. drawn on Andhra Bank. The interest was neither received from the Citi Bank nor from the CMF. The same was received from a third party whose name was not disclosed n the plaint by the SCB. Citi Banks SGL form of the value of Rs. 5,00,95,000/- was duly encashed by the SCB and there is no dispute about.11. On 17th June, 1991 SCB addressed their advocates letter to the Citi Bank calling upon the Citi Bank to forthwith handover to SCB the consideration of Rs. 44.8505 crores paid to the Citi Bank with further interest in respect of the said bonds as they had not received delivery of the said bonds from CMF in spite of the lapse of over nine months from the date of giving of the SGL of CMF. Advocate for the Citi Bank sent a reply to the advocates notice of SCB refuting the claim of the SCB. According to the Citi Bank, the liability of the Citi Bank to deliver the securities (11.5% of GOI 2009 Bonds) under the contract of sale between the Citi Bank and SCB stood discharged and the Citi Bank ceased to be liable to carry out any further obligation in respect of the said transactions.12. On 8th October, 1992 SCB filed a suit against the Citi Bank in the Federal Court at New York claiming consideration paid by the SCB to the Citi Bank. SCB also filed a suit bearing No. 3837 of 1992 in the High Court of Judicature at Bombay on its original side against the Citi Bank for recovery of the aforesaid amount due towards the Bonds. Citi Bank made an application to the Federal Court at New York seeking dismissal of the suit on the ground of forum non-convenience. By an order dated 22nd April, 1994 the Federal Court dismissed the said suit, inter alia, granting liberty to the SCB to revive the suit in the event the suit filed by the SCB in the Bombay High Court was not disposed of within a reasonable period of time. Before the service of summons on Suit No. 3837 of 1992, Citi Bank filed a suit in the nature of third party proceedings being Suit No. 20 of 1994 before the Special Court at Bombay constituted under the Act, inter alia, against the SCB, CMF and its trustees in which the Citi Bank pleaded that in the event of a decree being passed against the Citi Bank and in favour of the SCB in Suit No. 3837 of 1992 filed by the SCB against the Citi Bank, Citi Bank was entitled to a decree against CMF for delivery of the original securities, or, in the alternative for the refund of the consideration paid and for other reliefs.13. Plaint in Suit No. 3837 of 1992 was returned by the High Court for being presented to the Special Court because one of the parties notified under the Act was involved. The suit was transferred to the Special Court and renumbered as Suit No.22 of 1994. Citi Bank after service of the summons in suit No. 22 of 1994 filed its written statement.14. Primarily the case of SCB against the Citi Bank was for return of money on the ground that for consideration which was paid on 18th and 19th September, 1991, it had not received the transacted securities. That Citi Bank expressly/impliedly warranted that CMF would transfer the Bonds and on its failure to do so, the Citi Bank was obliged to deliver the Bonds. That the action of Citi Bank was fraudulent and amounted to deceit. That useless and worthless SGLs were given by Citi Bank which even could not be transferred in its name. In the written statement filed by SCB in Citi Banks suit an additional plea (which is absent in its own suit filed two years earlier) was taken to the effect that the SGL sought by SCB was an SGL of CMF in favour of SCB and not the one drawn in favour of Citi Bank. Citi Bank in its defence in suit no.22 of 1994 pleaded and contended that as SCB had on its own volition asked for the took the SGL of CMF which was in its possession and returned the two BRs duly discharged and therefore the Citi Bank was no longer under any obligation to either pay any sum or to deliver any securities much less to refund the money. That SCB returned two BRs duly discharge in exchange of the SGL of CMF at its express desire. The obligation to deliver bonds under BRs was substituted by delivery of the SGL of CMF. Citi Bank similarly claimed complete discharge in its own suit. Citi Bank in its suit claimed for a decree against CMF in case a decree was passed against the Citi Bank in the Suit filed by SCB. The defence taken by the CMF in the two suits was more or less common. In substance it was that all these transactions were part of Hiten Dalals transactions with SCB and that CMF as well as Citi Bank were merely used as conduit to pay monies from the Bank of Karad which was basically a Hiten Dalals account to SCB and From SCB to the Bank of Karad and that all these transactions were in pursuance of an arrangement which Hiten Dalal had with SCB under which sCB used to Park funds with Hiten Dalal for guaranteed return of 15 percent, although this parking of funds was shown simulated transaction inAppeal No. 8340 of 199564. This appeal has been filed by the CMF against the decree passed against it in Suit No. 20 of 1994.

Court's reasoning:
33. What is the effect of production of documents by promissor from its custody was considered in Chaudhari Mohammad Mehdi Hasan Khan vs. Shri Mandir Das, (L.R. 39 Indian Appeals 184). In the said case, a suit was filed on the basis of mortgage deed for the recovery of Rs. 62,000/- by way of sale of the mortgage premises. At the time of institution of the suit the plaintiff produced only a copy of the document, alleging that the original had been lost. The defendant in his written statement admitted the execution of the document but alleged that the debt has been discharged. In support of this allegation he produced the original document containing the endorsement of payment of by the plaintiff. The Privy Council overruling the decision of the Judicial Commissioner held that in view of the presumption under Section 114 of the Evidence Act the onus was upon the plaintiff to show that the debt was still subsisting which the plaintiff had failed to discharge by producing any evidence. It was held that production of the document by the defendant from his custody raised a rebuttal presumption of the discharge of the debt.34. In our view, the law has been correctly stated in the aforesaid case and applying the same ratio, we hold that production of two BRs by the Citi Bank raised a rebuttable presumption that Citi Bank had discharged its obligation under the two BRs which the SCB failed to dislodge by pleading/leading any evidence to show that circumstances under which the two BRs were returned. In the absence of any explanation by the SCB either in its plaint in Suit No. 22 of 1994 or the written statement filed by it in Suit No. 20 of 1994 whatsoever as to why it had asked for and took dishonoured SGL of CMF in exchange of two BRs raises a presumption under Section 114, illustration (i) that Citi Bank was discharged of its obligation under the BRs i.e. to deliver the Bonds.The learned Special Court fell in error in holding that Section 41 of the Contract Act would be more appropriately applicable. Section 41 for the reasons set out above would not be applicable to the facts of the present case. It also fell in error in holding that Citi Bank did not plead complete discharge from performing its obligation in terms of Section 63. In our opinion, Citi Bank has specifically pleaded that it stood discharged from the performance of the original obligation on the delivery of SGLs to the SCB, which were asked for and accepted by SCB for reasons best known to it. SCB instead of the original satisfaction accepted another satisfaction, deemed fit by it, in terms of Section 63 of the Indian Contractdo not find any substance in this submission. Suit No. 22 of 1994 and Suit No. 20 of 1994 were back to back suits and the enforcement of decree in Suit No. 20 of 1994 was contingent upon a decree being passed n Suit No. 22 of 1994. Acceptance of the submission of the scb would be that this court would be passing a decree against CMF indirectly. Result would be that the amount received by Citi Bank from CMF would be allowed to be retained by SCB, despite the fact that SCBs suit did not succeed. SCBs contention is based on the presumption that SCB had received neither securities nor money and on the other hand CMF has received the money and has unjustly enriched itself. CMF in both the suits has not only denied the allegations to this effect but has in fact pleaded a specific case to the contrary. Once the court comes to the conclusion that Citi Bank has discharged its obligation under Section 63 of the Indian Contract Act then there is no warrant or justification on the part of the Court to pass any order or decree or maintain a decree in favour of SCB. Suit No. 20 of 1994 is a contingent suit and, therefore, the said suit is not even liable to be tried much less decreed, if it is found that Citi Bank has discharged its obligation and is not liable to SCB. The submission of SCB that since a decree has been passed in the contingent suit, to the extent of decretal amount paid in the contingent decree, SCBs suit should be decreed cannot be accepted. Firstly it is to be decided in SCBs own suit (22 of 1994) whether it is entitled to a decree or not. If that suit is dismissed then the question of passing any decree in Suit No. 20 of 1994 which is a contingent suit would not arise. Acceptance of the submission of the SCB would mean that though SCBs suit does not deserve to succeed but still it be maintained by passing a decree in the contingent suit which cannot be done. It would be travesty of justice rather than doing justice. The submission is, therefore,Appeal No. 8340 ofCivil Appeal No. 7941 of 1995 we have recorded a finding that Suit No. 20 of 1994 filed by the Citi Bank was a back to back suit to save itself in case a decree was passed against it in the suit filed by the Standard Chartered Bank in Suit No. 22 of 1994. In other words, it was a contingent suit based on the result in Suit No. 22 of 1994. Mr. Kapadia, learned senior counsel appearing for the CMF had addressed arguments at length supporting the submissions made on behalf of Citi Bank against the Standard Chartered Bank. He did not say much against the decree passed in favour of the Citi Bank. We need not deal with the contentions raised by Mr. Kapadia as we have accepted the Civil Appeal No. 7941 of 1995 and set aside the decree passed against the Citi Bank in Suit No. 22 of 1994. The consequence of the acceptance of the said appeal would be that this appeal has to be accepted which arises from a contingent suit.