S.R. RAMARAJ

SPECIAL COURT, BOMBAY

AUGUST 19, 2003

(S. RAJENDRA BABU, B.N. SRIKRISHNA ANDG.P. MATHUR, JJ.]

Practice and Procedure: Security transactions between Banks-Suit for refund of certain sum in Goernment security-Alleged tendering of false C defence in the written statement-Contempt-Special Court held the defence as pleaded in the written statement false and repetition thereof in the evidence in chief amounts to contempt-On appeal, Held: A person could be held liable for making false statement of facts, but not liable on the basis of the pleading/facts whih are not false-Appellant deposing on te basis of material on record but had no personal knowledge of the transaction- D Hence, not liable for contempt of Court-Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992-Section 10(/)-lndian Penal Code, 1860-Sections 182, 183, 191, 192, 193, 199, 200 and 209.

Standard Chartered Bank (SCB) filed a suit against Canbank Mutual Fund (CMF) for refund of certain sum due under three SGL transfer forms E in Government oflndia Security transactions. In the written statement CMF took the stand that the transactions were squared off on the basis of available records. The Special Court held the appellant, employee ofCMF, liable for contempt of Court for taking up false defence as pleaded in the written statement and repeated in the evidence-in-chief and , convicted him. Hence the

F present appeal.

It was contended for the appellant that the stand ofCMF as taken in the written statement was same throughout and supported by documents though with reference to other material, the stand might be falsified; that in cases of such nature, the party could only be made liable for tendering evidence deliberately and that the statement must be false; and that the stand of CMF G was in conformity with the plaint filed in another connected suit which was held true and correct by the Court; and that when two views are possible on the basis of pleadings, the same would not amount to contempt.

Allowing the appeal, the Court

HELD: I.I. The verification offacts by the appellant as adverted to in 778

S.R. RAMARAJ v. SPECIAL COURT, BOMBAY 779

the written statement was not made on the basis of personal knowledge of the A appellant and the defence set up by him was on the basis of the stand taken by his employer Canbank Mutual Fund (CMF) in the connected suit. When in a suit of the CMF the stand had been accepted, but in the suit against CMF such stand had been dis-believed, it can not be held that the appellant had deliberately stated falsehood to mislead the Court or to simply gain time to B the disadvantage of the other party in this matter. (785-C, DI

1.2. Where a verification is specific and deliberately false, there is nothing in law to prevent a person from being proceeded for contempt In order to expose a person to the liability of a prosecution of making false statement there must be a false statement of fact and not a mere pleading made on the C basis of facts which are themselves not false. Merely because an action or defence can be an abuse of process of the Court those responsible for its formulation cannot be regarded as committing contempt, but an attempt to deceive the Court by disguising the nature of a claim is contempt. If the facts leading to a claim or defence are set out, but an inference is drawn thereby stating that the stand of the plaintiff or defendant is one way or the other it D will not amount to contempt unless it be that the facts as pleaded themselves are false. f785-E, F, GI

1.3 .. In the instant case, when the appellant tried to explain his case in his evidence, the same was shut out on the basis that it was hearsay. An officer of bank who had no personal knowledge of the transactions in question, and E was deposing on the basis of material on record, his evidence cannot be from his knowledge and necessarily has to be hearsay. Hence, the Special Court was not justified in shutting out that part of the evidence. Hence, the order of the Special Court initiating proceedings for contempt and convicting the appellant is set aside. 1785-H; 786-A, Bl F

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 1491 of 1995.

From the Judgment and Order dated 12.9.1995 of the Special Court (Trial of Offences Relating to Transactions in Securities) at Bombay in Suo G Motu Show Cause Notice No. 5 of 95 in Suit No. 13 of 1994.

Mukul Rohatgi, Ms. Sunita Dutt, Pardeep Sanchety and Nilesh Parekh for the Appellant.

R.N. Trivedi, Additional Solicitor General, (AC), Ms. Sushma Suri and H

A Ms. Rekha Pandey for the Respondent.

The Judgment of the Court was delivered by

RAJENDRA BABU, J. This appeal is filed under Section 10(1) of the Special Court (Trial of Offences relating to Transaction in Securities) Act, B 1992 (hereinafter referred to as 'the Act') . A suit had been filed by the

Standard Chartered Bank (SCB) against Canbank Mutual Fund (CMF) for refund of a sum of Rs 72.25 crores claiming the same to be due under three SGL transfer forms in Government of India security transactions purported to have been undertaken between SCB and CMF in August/September 1991. In the course of the written statement CMF took the stand that the transactions c were squared off on the basis of documents made available to the appellant before affirming the written statement and tendering evidence.

The Special Court held that taking up a false defence as pleaded in the written statement and repeating the same in the evidence in chief amounts to D contempt of court and convicted the appellant to undergo simple imprisonment for a period of two weeks and pay fine of Rs. 2 thousand. The learned Judge in the course of the order held that perjury is contempt and there is a growing tendency amongst parties not to honour their commitments and pay up their dues and liabilities and file any sort of defence irrespective of whether it is true or not; that, therefore, it is for courts to actively curb such tendencies.

E The Special Court prima facie felt that the defendant and deponent of written statement were aware that the defence was false at the time when written statements were filed and knowing it to be false took the same and sought to persist with it at the trial. Two show cause notice were issued-one under Sections 182, 183, 191, 192, 193, 199, 200 and 209 of the Indian Penal Code F and another for contempt of court-, however,· no action was taken pursuant to the notice issued for offences under the Indian Penal Code and these proceedings stood dropped.

At the very outset, on behalf of the appellant an unconditional apology was tendered. It was stated that in spite of fact that the appellant had a good G answer to the show cause notice the apology was being tendered. However, the Special Court rejected the apology tendered by the appellant by observing that there is an increasing tendency to first commit the perjury contempt and, when caught out, tender an unconditional apology and such an apology is not an expression of genuine remorse. In the course of the order, the learned Judge noticed as follows :- H

'"·

"In evidence in chief an explanation was sought to be given as to why A such averments were made in the written statement. Of course, as the explanations themselves showed that the averments in the written statements were based on hearsay evidence the court did not allow .... the explanations to come on record. The fact remains that in evidence in chief the false statements were sought to be supported. Thereafter B in cross-examination an attempt was first made to justify the false averments. Only when it was found that the falsehood could not be maintained that the truth was admitted."

Though several contentions had been raised before the Special Court, it is unnecessary to advert to the same. All that we need to examine in this c case is whether the defence taken by the appellant would a, mount to contempt of court.

In this case, the false statement alleged is as under :-

"5(e) On 27th May 1991, the 1st defendant, in the course of their D investment business, had purchased certain securities being 11.50% GOI 2008 securities of the aggregate face value of Rs. 58.39 crores from the Bank of Karad Ltd., Hiten Dalal had acted as a broker in this transaction. The said Bank of Karad Ltd., in order to effect transfer of the said securities to the first Defendant issued its combined SGL transfer from authorising the Reserve Bank of India to operate its SGL E account and transfer and assign the said securities to the SGL account of the 1st Defendant. In consideration of the said securities purchased by the 1st Defendant, the 1st defendant issued their cheque dated 27th May, 1991 bearing No. 160319 in favour of the said Bank ofKarda Ltd. for the sum of Rs. 58,90,16,042.44 being the cost of the said F securities of face value Rs. 58.39 crores and the amount of interest accrued thereon up to 27th May 1991. •

(f) On 29th May, 1991, the 1st Defendant lodged the said SGL transfer forms for 11.50% GOI 2008 securities of face value of Rs. 58.39 crores issued by the Bank of Karda Ltd., with Reserve Bank of India, Public

G Debt Office, for clearance. On 29th May, 1991, the Reference Bank of India returned the said SGL transfer form issued by the Bank of Karad Ltd. on account of insufficient balance. On 31st May, 1991, the said SGL transfer form was again presented to the Reserve Bank of India for clearance but was again returned for want of insufficient balance.

(g) The I st Defendant thereafter handed over the said SGL transfer form for 11.50% GO! 2008 securities of face value Rs. 58.39 crores issued by the Bank of Karad Ltd. to the broker Hiten Data! sometime in July 1991 for rectification and replacement by a fresh SGL transfer form of the said Bank of Karad Ltd.

(h) During the period 1991 August to December 1991, the I st defendant in the course of their investment business, entered into three sale transactions whereunder the I st defendant sold 11.5% GOI 2008 securities to the plaintiff, particulars whereof are as follows :

(i) On 23rd August, 1991, the !st defendant sold 11.50% GOI 2008 C securities of the aggregate face value Rs. I 0 crores.

(ii) On 26th August 1991 the 1st defendants.old 11.50% GOI 2008 securities of the aggregate face value of Rs. 7 crores.

(iii) On 4th September 1991, the I st defendant sold 11.50% GOI 2008

securities of the aggregate face value of Rs. 43.00 crores.

In all the aforesaid three sale transactions Hiten Dalal had acted as a broker and he had approached the I st defendant with a request to purchase the said securities on behalf of the plaintiff. In all the aforesaid three sale transactions, Hiten Dalal and/or his representative had brought the plaintiff cheque to the I st defendant and had collected for the plaintiff from the I st defendant the cash memos, along with the transfer forms issued in favour of the plaintiffs.

(i) The 1st defendant say that the SGL transfer form issued by the Bank ofKarad Ltd. for Rs. 58.39 crores for 11.50% GOl 2008 securities had remained outstanding till December 1991. The lst defendant had made enquires with Hiten Dalal in respect of the said SGL transfer forms issued by the Bank of Karad Ltd. and which had been returned to Hiten Dalal in July 1991 for rectification and replacement. On enquiry, Hi ten Dalal informed the I st defendant that sin.::e there were sale transactions outstanding for the same security between the plaintiff and the I st defendant in the sum of Rs. 43 crores and Rs. I 0 crores, the I st defendant transactions with the plaintiff to the extent of Rs. 59.39 crores would be squared off and delivery of all the security would be directly transacted and adjusted between the Bank of Karad Ltd. and the plaintiffs. He advised the I st defendant, he would directly delive; to the plaintiffs fresh SGL forms for that amount issued by the

.... ,

Bank of Karad Ltd. to the plaintiffs and would return to the defendant, A three transfer form of Rs. 43 crores, Rs. IO crores and 7 crores issued in favour of the plaintiffs and the I st defendant transaction with the Bank ofKarad Ltd. and the plaintiff would stand squared off and 1st defendant would remain liable for securities of only the balance of Rs. l.61 crores.

(j) Accordingly, on 19th December, 1991, Hiten Dalal brought form and on behalf of the plaintiff the original SGL transfer form in respect of the 11.50% GOI 2008 securities sold to the plaintiff on 26th August, 1991 (aggregate face value Rs. 7 crores) with a request to substitute

the said SGL transfer forms with two SGL transfer forms, one dated C 19th December 1991 for Rs. 58.59 crores and another dated 18th December, 1991 for Rs. l.61 crores. The said Hiten Dalal who had earlier in the day brought the said SGL transfer forms dated 26th August, 1991 for Rs. 7 crores from the plaintiffs, took the fresh 2 SGL transfer forms (one dated 19th December 1991 for Rs. 1.61 crores) for the plaintiffs from the lst defendant on the same day.

(k) On 20th December, 1991, the SGL transfer form for Rs. 1.61 crores was presented by the plaintiffs to the Reserve Bank of India and cleared by effecting transfer of securities of face value of Rs. 1.61 crores from the !st defendant SGL account to the plaintiffSGL account.

(I) In the aforesaid circumstances, the aforesaid transactions between the 1st defendant and Bank of Karad Ltd. and the 1st defendant and E

the plaintiff were squared off by Hiten Dalal in or about December 1991 between the Bank of Karad Ltd. the plaintiff. On the I st defendant transactions with the 2 banks having been squared off, the 1st defendant obligations under the said three SGL transfer forms dated F 4.9.1991 for Rs. 43 cores, dated 23.8.1991 for Rs. IO crores and dated 19.12.1991 for Rs. 5.39 crores were discharged and there was no liability on part of the 1st defendant."

The appellant took the stand that he was working as Divisional Manager in Charge of Systems in the Employment of Canbank Mutual Fund; that at G the relevant time he was not concerned with transactions of investment; that in June 1993 Canbank investment Services Limited was incorporated to manage the affairs of the Can bank Mutual Fund and that his services were, therefore, transferred to this Company initially as a Divisional Manager and from December 1994 as an Assistant General Manager; that on receipt of the Standard H

A Chartered Bank's letter dated 19th May, 1992 there appears to have been an internal inquiry by General Manager and the Chief Executive (Fund) and enquiries were also made by Mr. Acharya who was Assistant General Manager at that time and he submitted a note on 27th May, 1992. Further stand of the appellant was that he had been instructed to affirm the written statement on behalf of the trustees and he had no personal knowledge of the transactions B and based on the records he verified the statement. The relevant records which the appellant read in order to verify the written statement were -

(a) Mr. Acharya's letter dated 16th June, 1992;

(b) Plaint in suit No. 31 of 1994;

(c) Jankiraman's Committee Report;

(d) Charge-sheet filed by CBI in Case No. RC43(a)/92/ACB/BOM;

(e) A statement recorded by CBI from one Mr. Manoj Rane;

(t) Two affidavits of Mr. Hiten Dalal

On the basis that the note of Mr. Narichania indicated that the defence of squaring off was not correct, the Special Court concluded that "thus except for Canbank's own documents, there is not a single document which shows E or supports case of 'squaring off. On the contrary, all documents of independent parties show that there is no 'squaring off as pleaded'. The Special Court after adverting to various portions of the evidence further held that the appellant had committed contempt of court. However, when the . appellant tried to explain his position in regard to these matters, to which we F have adverted to earlier, the same were not allowed to be brought on record on the basis that they are outcome of hearsay.

The learned Additional Solicitor General, who appears for the appellant, contended that the learned Judge of the Special Court had gone far beyond the scope of the contempt jurisdiction, particularly when the Court held that G on the basis of the documents produced by the CMF the stand of the Bank had been throughout what had been stand in the written statement, .thugh, with reference to other material, that stand may be falsified. He contended that in a case of this nature what is important is that the party verifying the statement or tendering evidence before Court should be doing so deliberately and to his knowledge the statement must be false. He dr:ew our attention to H

the fact that the learned Judge had noticed that the stand of the appellant A was in confirmity with plaint filed in the connected suit by CMF and that suit was yet to be tried at that stage when the order under appeal was passed.

Subsequently another learned Judge who tried the suit of CMF held that the claim in that suit, which is akin to the defence as raised in the present case, is true and correct even after making a reference to the decision in the case out of which the contempt proceeding arises. Therefore, in the circumstances B of the case, he submitted that when two views are possible on the basis of pleadings raised in a case, the same would not amount to contempt of court at all.

The written statement had been verified by the appellant that what is C contained in written statement is based on the information received from the records of the defendants Nos. 2 to 11 and he believed the same to be true.

The verification of facts adverted to in the written statement is not made on the basis of personal knowledge of the appellant and the defence set up by him is on the basis of the stand taken by CMF in the companion suit. When in a suit of the CMF the stand had been accepted, but in the suit against D CMF such stand had been dis-believed, it becomes difficult to say that the appellant had deliberately stated falsehood to mislead the court or to simply gain time to the disadvantage of the other party in this matter. Where a verification is specific and deliberately false, there is nothing in law to prevent a person from being proceeded for contempt. But it must be remembered that the very essence of crimes of this kind is not how such statements may injure this or that party to litigation but how they may deceive and mislead the courts and thus produce mischievous consequences to the administration of civil and criminal justice. A person is under a legal obligation to verify the allegations of fact made in the pleadings and if he verifies falsely, he comes under the clutches of law. In order to expose a person to the liability of a prosecution of making false statement there must be a false statement of fact

and not a mere pleading made on the basis of facts which are themselves not false. Merely because an action or defence can be an abuse of process of the court those responsible for its formulation cannot be regarded as committing contempt, but an attempt to deceive the court disguising the nature of a claim G is contempt. If the facts leading to a claim or defence are set out, but an inference is drawn thereby stating that the stand of the plaintiff or defendant is one way or the other it will not amount to contempt unless it be that the facts as pleaded themselves are false. Further, whom the appellant tried to explain his case in his evidence, the same was shut out on the basis that it is hearsay. An officer of bank who had no personal knowledge of the H

A transactions in question, and was deposing on the basis of material cin record, his evidence cannot be from his knowledge and necessarily has to be hearsay.

Hence, the learned Judge was not justified in shutting out that part of the evidence.

We, therefore, set aside the order made by the learned Judge of the B Special Court initiating the proceedings for contempt and convicting the appellant for the same. The entire proceedings in relation to contempt of court stand set aside. The appeal is allowed accordingly.

S.K.S.

Appeal allowed.