2000 (4) TMI 759 - SC - Companies Law

Whether the appellants herein had suffered a loss as claimed or at all? Whether respondent No. 2 had given the said shares as securities and/or the same were taken from him forcibly. If the said shares were given as securities then the question would also be as to whether it was by way of pledge or mortgage? Whether rights and bonus shares dividend and interest on the said shares formed part of secured assets? Held that - The decision of the Special Court holding that the appellants had been able to prove loss to the extent of Rs. 280.80 crores is affirmed. Bonus shares dividend and interest were accretions to the pledged stock and have to be regarded as forming part of the pledged property which could not be ordered to be handed over unless redemption takes place. The letter dated 11-5-1992 addressed by Hiten P. Dalal to the appellants created a pledge in their favour not only of the shares and debentures worth Rs. 105 crores particulars of which were given in the said letter but also on the bonus shares dividend and interest accrued on the said pledged shares and debentures. In reduction of Dalal s liability to the appellants they are entitled to sell the original shares rights shares and the bonus shares and also to retain the dividend and interest accrued on the original shares. Cantriple Units referred to in the letter dated 11-5-1992 representing transaction value of Rs. 205 crores shall be returned to the custodian and his retention would be subject to the outcome of the other proceedings including Miscellaneous Application No. 36 of 1993 and the appellants and other parties would be entitled to try and establish their rival claims to the said units. The observations made by the Special Court with regard to the conduct of the appellants and their employees do not call for any interference.The award of costs by the Special Court for Rs. 30 lakhs against Hiten P. Dalal is affirmed.

Summary

Issues Involved:
1. Loss claimed by the appellant bank.
2. Whether shares were given as securities or taken forcibly.
3. Nature of the pledge or mortgage of shares.
4. Rights and bonus shares, dividend, and interest on the pledged shares.
5. Cantriple Units' ownership and handling.

Detailed Analysis:

1. Loss Claimed by the Appellant Bank:
The appellant bank claimed a loss of approximately Rs. 1253 crores due to transactions with Hiten Dalal. The Special Court found that the bank had proven a loss of Rs. 280.80 crores, specifically Rs. 201 crores for non-delivery of U.T.I. units and Rs. 79.80 crores for other transactions. The Special Court required the bank to prove the loss through independent evidence, not merely based on Dalal's admissions. The Supreme Court affirmed this finding, noting that the bank had not sufficiently proven losses beyond Rs. 280.80 crores.

2. Whether Shares Were Given as Securities or Taken Forcibly:
Dalal contended that the shares were taken forcibly by the appellant bank. The Special Court, after reviewing the evidence, determined that the shares were handed over voluntarily as security. Dalal did not provide evidence to support his claim of coercion, and the Supreme Court agreed with the Special Court's conclusion.

3. Nature of the Pledge or Mortgage of Shares:
The appellant bank claimed that the shares were either pledged or mortgaged. The Special Court found that the letter dated 11-5-1992 created a valid pledge of the shares in favor of the bank. The Supreme Court upheld this finding, noting that the bank had the right to retain and sell the pledged shares to recover the loss.

4. Rights and Bonus Shares, Dividend, and Interest on the Pledged Shares:
The Special Court ruled that bonus shares, dividends, and interest accrued on the pledged shares were not part of the pledge and must be handed over to the Custodian. The Supreme Court disagreed, holding that these accretions were part of the pledged property and could be retained and sold by the bank along with the original shares.

5. Cantriple Units' Ownership and Handling:
The Special Court directed the appellant bank to hand over Cantriple Units worth Rs. 205 crores to the Custodian. The Supreme Court noted that the bank had taken contradictory positions regarding these units and upheld the Special Court's decision, allowing the bank to establish its claim in other pending proceedings.

Conclusion:
1. The Supreme Court affirmed the Special Court's finding of a proven loss of Rs. 280.80 crores.
2. The shares were voluntarily handed over as security, not taken forcibly.
3. The letter dated 11-5-1992 created a valid pledge of the shares.
4. Bonus shares, dividends, and interest are part of the pledged property and can be retained by the bank.
5. Cantriple Units must be handed over to the Custodian, with the bank's claim subject to other proceedings.

Final Orders:
1. The decision of the Special Court regarding the proven loss, pledge, and handling of Cantriple Units is affirmed.
2. The bank is entitled to retain and sell the pledged shares and accretions.
3. The Special Court's observations on the conduct of the bank and its employees are upheld.
4. The award of costs of Rs. 30 lakhs against Dalal is affirmed.
5. Appeal No. 762 of 1999 is partly allowed, and Appeal No. 1878 of 1999 is dismissed. Parties to bear their own costs.