TMI Blog2006 (5) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned judgments of the Special Court in Special Court Suit and hold that SCB as the owner of the suit bonds is entitled to be registered as such in the register of NPCL. - CIVIL APPEAL NOS. 2275 AND 2276 OF 2002 - - - Dated:- 5-5-2006 - Y.K. SABHARWAL, B.N. SRIKRISHNA AND P.P. NAOLEKAR, JJ. Ram Jethmalani, Aspi Chinoy, Tushad K. Cooper, Mahesh Agarwal, P.R. Mala, Manu Krishnan, Shilpa Singh, E.C. Agarwala, Rishi Agarwal for the Appellant. Rohit Kapadia, Shaunak Thacker, Pradeep Sancheti, Ms. Sunita Dutt, Nilesh Parekh, Rajiv Mehta, Kumar Desai, Ashwin Pandya, Nandini Gore, Ms. Manik Karanjawala, P.H. Parekh, Ms. Sweety Manchanda for the Respondent. JUDGMENT B.N. Srikrishna, J. - These two appeals under section 10 of the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 (hereinafter referred to as "the Act") are against the judgments of the Special Court constituted under section 5 of the Act, by which judgments the Special Court dismissed Special Court Suit No. 11/96 and allowed Misc. Petition No. 81/95, which had been transferred to it. As a result of the said two judgments of the Special Court, the claim made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 23728 in lieu of the original LOA in respect of the suit bonds as well as the 17% NPCL taxable bonds, which were said to have been enclosed with the said letter. 3. According to SCB, in April/May 1992, when the securities scam broke out, the officers of SCB made an investigation of its records and found that SCB did not have in its possession the original LOA, but only a photocopy. 4. On 20-5-1992, SCB wrote to NPCL alleging that though in ABFSL s letter dated 26-2-1992, it was stated that the original LOA was forwarded, SCB had found that only a photocopy of the LOA had been enclosed. A copy of ABFSL s concerned letter was also enclosed. SCB further stated that the original LOA purportedly sent by ABFSL was not available, that a note may be made in NPCL s records that the original LOA was missing and, therefore, due caution should be exercised by NPCL. SCB also requested for issue of a duplicate allotment letter on the undertaking to return the original, if received by it, and keeping NPCL indemnified against claims, if any, arising out of issue of the duplicate. On 29-5-1992, SCB requested ABFSL to confirm to NPCL the fact of having sold the suit bonds to SCB. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. On 9-10-1992 SCB wrote to NPCL stating that as the suit bonds had been issued to ABFSL, who had confirmed selling the same to SCB, the LOA from CMF may be disregarded. By another letter of 15-10-1992 from ABFSL to NPCL, ABFSL once again confirmed the selling of the suit bonds to SCB and stated that as per market practice the suit bonds had been sold with blank transfer deeds to SCB. On 6-11-1992 NPCL informed SCB that, since there was a dispute over the ownership of the suit bonds between SCB and CMF, the matter should be resolved between SCB and CMF, only after which necessary action would be taken by it. 7. On 27-11-1992 SCB filed Suit No. 3808/92 on the Original Side of the Bombay High Court against ABFSL, CMF and NPCL for a declaration that it was entitled to the suit bonds and for an order directing NPCL to register the suit bonds in the name of SCB and to hand over the same to SCB. A further declaration was sought that CMF had no right, title and interest in the suit bonds; in the alternative, SCB sought refund from ABFSL. The said suit came to be transferred to the Special Court on 25-9-1996 and was renumbered as Special Court Suit No. 11 of 1996. 8. On 27-11-1992 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and further that, he had sold and delivered the suit bonds to CMF on 27-2-1992. 12. On 25-6-1996, SCB replied to HPD s affidavit and denied that it had any transaction with HPD in respect of the suit bonds on 27-2-1992 and denied that the suit bonds were sold by SCB to HPD on 9-5-1992, or that it had purchased Cantriple Units from HPD. SCB also pointed out several inconsistencies and contradictions in the stand taken by HPD in his affidavit. 13. On 27-11-1996, the Special Court dismissed Misc. Petition No. 81/95 by holding that CMF had admitted through its counsel that it was not in a position to show that it had paid any consideration for the suit bonds to ABFSL, and, as no consideration was paid by CMF either to ABFSL or to SCB, CMF could claim no title to the suit bonds, even assuming that HPD had acted as a mercantile agent and appeared to have obtained possession of the LOA through/from SCB. In view of this, the Special Court concluded that CMF could claim no right, title and interest in the suit bonds. However, in view of the fact that SCB had already filed Suit No. 11/96, it was held that SCB s title to the suit bonds could be decided in that suit. 14. On 23-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Answers 1. Does the Plaint not disclose any cause of action against the Defendant No. 2 ? In the affirmative i.e ., in favour of CMF and against SCB 2. Whether the plaintiffs were entitled to and continue to be entitled to the suit bonds as alleged in para 8 of the Plaint ? In the negative i.e ., in favour of CMF and against SCB 2A. Whether the Plaintiffs prove the circumstances in which Original BR was taken away from them as alleged in para (8) of the Plaint ? In the negative i.e ., against SCB and in favour of CMF. 3. Whether the alleged transaction dated 26-2-1992 was a transaction of Hiten P. Dalal as alleged in para 1( d ) and 8 of the Written Statement ? In the affirmative i.e ., in favour of CMF and against SCB 4. Whether the alleged transaction dated 26-2-1992 was under an arrangement with the Plaintiffs as alleged in paras 1( d ) 7, 8 and 9 of the Written Statement ? In the affirmative i.e ., in favour of CMF and against SCB. 5. Whether the Plaintiffs are estopped from making any claim as alleged in para 1 read with paras 22 and 29 of the Written Statement? In the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Suit ? In the affirmative 2. Whether the Plaintiffs are entitled to and/or are the owners of the said securities without having received the original Letter of Allotment? Answer for Issue Nos. 2 and 3. Issues between SCB NPCL were framed on 2-7-1997 i.e ., after Judgment and Order of Variava, J. (as he then was) dismissing Misc. 3. Whether these Defendants are entitled to a lien on the said Bonds for securing the repayment of the deposit placed by them with the 1st Defendant ( sic ) ? Petition No. 81 of 1995 on 27-11-1996 (which judgment has been subsequently overruled by the Apex Court). As stated above, at one point of time, there were disputes between plaintiff and NPCL which disputes do not survive in view of the subsequent stand taken by SCB before this Court. Therefore issue Nos. 2 and 3 do not arise for determination. 4. Whether the Plaintiffs prove that these Defendants are bound to register any Bonds in the name of the Plaintiffs or to issue the said Bonds and relevant interest warrants to the Plaintiffs ? In the negative, 5. What Order ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t held that even if CMF failed to prove the payment of consideration, SCB could not succeed in its suit as it was a title suit. In the same vein, the Special Court held that the Suit had to fail because it was a title suit and HPD was entitled to deal with the suit bonds in his own title. And since the title suit failed, SCB could not prevent NPCL from transferring the bonds in favour of CMF. Finally, the Special Court concluded on this issue, that non-payment of consideration by CMF, as submitted by SCB, could only be questioned by HPD and not by SCB. The Special Court also held that as the Suit was a title suit, SCB was required to prove its title and could not succeed on the basis of the faults in the evidence of the defendant-CMF. 22. Mr. Jethmalani, learned counsel for the appellant, contended that the Special Court erred in taking the view that Suit No. 11/96 was a title suit in which SCB failed to have its title established. He submitted that on proper analysis, the suit of SCB was in the nature of a declaratory suit falling within the ambit of section 34 of the Specific Relief Act, 1963, which corresponds to section 42 of the Specific Relief Act, 1877 (hereinafter refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a title suit. 24. We shall now turn to the nature of the proceedings in Misc. Petition No. 81/95. This petition was presented under section 111 of the Companies Act, 1956. Section 111(1) provides for the power of refusal by a company to register the transfer of debentures to a transferee. The transferor or the transferee has a right of appeal to the Tribunal (then, the CLB) under sub-section (2) of section 111. The nature of proceedings under section 111 are slightly different from a title suit, although, sub-section (7) of section 111 gives to the Tribunal the jurisdiction to decide any question relating to the title of any person who is a party to the application, to have his name entered in or omitted from the register and also the general jurisdiction to decide any question which it is necessary or expedient to decide in connection with such an application. It has been held in Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd. AIR 1998 SC 3153, that the jurisdiction exercised by the Company Court under section 155 of the Companies Act, 1956 (corresponding to section 111 of the present Act before its amendment by Act 31 of 1988) was somewhat s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him, the suit bonds would be transferable by endorsement and delivery as long as the transferee gave intimation as contemplated under the Notification. According to him, the terms of section 108(1) as amended by the aforesaid Notification had been fulfilled, and, therefore, there was an obligation on the part of NPCL to register CMF as the registered holder of the suit bonds. Emphasising that the intention of the Legislature is to enable transferability of bonds issued by Government companies with greater facility and lesser formality, he referred to provisions of the Companies Act, 1956 and the Transfer of Property Act, 1882 (hereinafter referred to as the "TP Act"). Section 2(12) of the Companies Act, 1956 defines debenture as including debenture stock bonds and any other securities of a company, whether constituting a charge on the assets of the company or not. Chapter VIII of the TP Act deals with transfers of actionable claims. Section 137 of the TP Act, however, provides that the provisions in Chapter VIII (Sections 130 to 136) would not apply to stocks, shares or debentures. The argument is that the mode of transfer of actionable claims specified in the TP Act (Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinafter referred to as "RBI"), banks and financial institutions were required to maintain a certain liquidity ratio of debt to equity. They could have ready forward transactions in securities only with other banks and only in respect of Government and other approved securities. The statutory liquidity ratio was maintained by sale and purchase of securities, issued by Government companies and public sector institutions. 29. An unhealthy practice had developed among all the banks and financial institutions affected by the securities scandal, under which some securities were repeatedly shown as bought and sold in order to advance finances to certain brokers. HPD was one of them. The so called 15% arrangement was an informal arrangement with HPD under which SCB bought securities from other counter-parties, as directed by HPD, and also sold them to such parties at such rates as designated by HPD. A desired sale price was arrived at so as to ensure that SCB obtained a return of 15% of the transaction. The evidence on record consisting of the Janakiraman Committee Report (the report of a High Powered Committee appointed by RBI to investigate into the irregularities in the funds ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic policy if it was a genuine security transaction. None of the circulars relied upon by Mr. Salve prohibit such transactions. In my opinion none of the circulars have any bearing on the point under consideration. The suit transactions or transactions under the alleged 15% arrangement are not against the subject-matter of these circulars. They are also not even against any policy laid down therein. I thus see no illegality." These were expressly approved by this Court in the judgment. It appears to us that much of the controversy about the nature of the 15% arrangement could have been avoided if the judgment in the Canara Bank s case ( supra ) had been kept in mind. We notice from the impugned judgment that the decision of this Court in Canara Bank ( supra ) was specifically brought to the notice of the Special Court, but it appears to have been brushed aside on the grounds, first, that the doctrine of res judicata would not apply as section 13 of the Act had an overriding effect; second, the exact scope of the 15% arrangement was not determined by evidence in the previous suit; and third, that an arrangement by which banks and public financial institutions are enabled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly in view of the fact that there has been no new revelatory evidence on this issue. 32. We are not in agreement with the view taken by the Special Court that section 13 of the Act overrides the doctrine of res judicata. Section 13 of the Act provides: "The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any Court, Tribunal or other authority". This was certainly not intended to abrogate all the established principles of law, unless they were directly in conflict with the express provisions of the Act itself. There is nothing in the Act which is inconsistent with the doctrine of res judicata, per se, as seems to have been assumed by the Special Court. We are also unable to appreciate the thinking of the Special Court that there was something morally or economically reprehensible in the arrangement which was brought about between HPD and SCB as a result of which SCB was able to earn higher return. B. Evidence on Record: 33. The evidence as to the nature of the 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to it by the Special Court on its own. The Special Court has observed thereupon: "Therefore, all such transactions were entered into by the bank on behalf of HPD. Therefore, they were transactions of HPD. This is amply illustrated by Exhibit-11. A portfolio represents stock held by SCB on behalf of HPD. HPD was entitled to enter into buy transactions and sale transactions in respect of securities coming under that portfolio. The portfolio was built up by SCB by purchasing securities at the instance of HPD. This is also called as building up of position. The suit contract comes under Exhibit-11. By the suit contract the LOA came within the portfolio of HPD. He was allowed to deal with the LOA under the portfolio." We are afraid that this inference is not readily available ex facie from the document; nor was there any other evidence given by any witness explaining the document, suggesting it. 36. Further, the word loan used in the Security Ledger (Exhibit-11) was seized upon by the Special Court to draw an unwarranted inference. The Special Court has held that this term shows "lending of scrip to HPD" and has then gone on to hold as follows: "this word has to be read while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Court has been given a certain amount of latitude in the matter of procedure, it surely cannot fly away from established legal principles while deciding the cases before it. As to what inference arises from a document is always a matter of evidence unless the document is self-explanatory. We do not think that any of the documents placed on record during the trial were self-explanatory; nor were they explained by any competent witness on either side. In the absence of any such explanation, it was not open to the Special Court to come up with its own explanations and decide the fate of the Suit on the basis of its inference based on such assumed explanations. In fact, these inferences run contrary to the oral evidence given by Kalyana Raman (PW-1) in relation to the transaction of 26-2-1992. 40. The Special Court has also adversely commented on the conduct of SCB in not leading evidence to prove what the 15% arrangement was. We fail to see how a party could be called upon to lead evidence with regard to an issue which was no part of its case. The 15% arrangement was brought on record at the instance of CMF and the burden, if any, of proving its details lay on CMF. Although, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oversy and to rely upon the abstract doctrine of onus of proof." S.P. Chengalvaraya Naidu s case ( supra ), was a situation of a fraudulent litigant basing his case on falsehood and withholding vital documents. Citibank ( supra ) merely relies on the observations made in Murugesam Pillai s case ( supra ) and Gopal Krishnaji Ketkar s case ( supra ), both of which say that it is not a sound practice for those "desiring to rely upon a certain state of facts to withhold from the court" the best evidence which is in their possession. 44. On the other hand, the three authorities on which Mr. Jethmalani relied independently take the view that unless a party is called upon to produce evidence or ordered to do so by the court and fails to do so, no adverse inference can be drawn against such party. Mr. Jethmalani distinguished the two apparently contradictory lines of authorities by pointing out that in the authorities relied on by Mr. Kapadia the facts showed that there was a special obligation upon the party concerned to produce the relevant documents even without being called upon or ordered to do so and that the party had failed to produce them. Further he pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Court took the view that the direct fallout of the 15% arrangement was that HPD became the owner of the suit bonds and had the right to deal with the suit bonds as he pleased; and since this was done to the knowledge of and by acquiescence of SCB. SCB was estopped from denying that HPD had acquired any such right to deal with the suit bonds or to transfer them to any other person. 47. The Special Court has taken the view that the transactions reflected in the Security Ledger (Exhibit-11), indicated funding of the broker by SCB and that it was something like a running account of HPD in the books of SCB, which had opened with an entry of 26-2-1992 and was settled on 9-5-1992. It then observed: "Under Exhibit-11, the suit scrip of 9% NPCL bonds was made available to HPD for raising finances either by sale, pledge or Ready Forward. It was bought for HPD as he had assured a fixed return to SCB. The ( sic ) HPD was entitled to trade. He was entitled to take position in the market on the suit bonds bought for him as he has assured a fixed return. He was entitled to take a position on suit bonds. He took that position through SCB. Therefore, SCB had taken his position under Exhibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic of whom the person is one, and not merely neglect of what would be prudent in respect to the party himself or even of some duty owing to third persons, with whom those seeking to set up the estoppel are not privy. ****** There is a breach of the duty if the party estopped has not used due precautions to avert the risk. The detriment may entitle the innocent third person either to prosecute or to defend a claim. His identity may be ascertainable only by the event, in the sense that he has turned out to be the member of the general public actually reached and affected by the conduct, negligence, representation or ostensible authority. . . ." (pp. 55, 56, 58) 49. It was thus held that a plea of estoppel could not be availed of if there was no duty owed by the person sought to be estopped, nor any representation made by such person. In New Marine Coal Co. (Bengal) (P.) Ltd. v. Union of India AIR 1964 SC 152, this Court had occasion to examine the doctrine of estoppel and cited with approval the following observations in Halsbury s Law of England 1 : "before any one can be estopped by a representation inferred from negligent conduct, there must be a duty to use due ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mi Transactions (Prohibition) Act, 1988 is a plausible one, we are of the view that the combined effect of sections 3(3) and 13 of the Act would give an overriding effect to the provisions of the Act. It is rightly urged by Mr. Kapadia, learned counsel for CMF, that if that were not so, then the whole purpose of the Act would be defeated since the objective of the Act was to reach out and attach the property in whichever hands it was, irrespective of in whose names the property stood, as long it was property belonging to a notified person. Thus, the contention based on section 4(2) of the Benami Transactions (Prohibition) Act, 1988 has been rightly rejected by the Special Court. 52. Much was said by the learned counsel for CMF about the manner in which SCB has hedged its replies. The learned counsel criticised the attempt of SCB to hide the true facts and contended that SCB kept on changing its stand from time to time. He highlighted that the stand taken by SCB in the Suit, the stand taken by it in the reply to the Petition and the stand taken by it before this Court was wholly inconsistent and, therefore, urged that the claims of SCB should fail. We think that this is a classi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the pleadings of SCB either in its plaint or in the written statement filed in reply to CMF s petition. There was also no reference to it at any time when evidence was led by the parties. The first time this part of the case appears is in the copy of the charge-sheet filed by CBI against certain employees of SCB and HPD for several criminal offences. Mr. Jethmalani contended that since this charge-sheet was produced on record at the instance of CMF, the averments in the chargesheet must be taken to have been proved before the court. Even assuming Mr. Jethmalani is right in characterising the charge-sheet as a public document within the meaning of section 35 of the Indian Evidence Act, 1872, we cannot accept all that is stated in the charge- sheet as having been proved. All that we can say is that it is proved that the police had laid a charge-sheet in which such allegations have been made against the accused. We need not delve further into it since the criminal proceedings against HPD and others are still pending and it will be up to the appropriate court to decide the correctness or, otherwise of the charges in the charge-sheet. All that can be said at this stage is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved that the suit bonds transaction was in accordance with law. 56. Mr. Kapadia, learned counsel for CMF, contended that the evidence on record showed that SCB had acquired no title at all to the suit bonds even on the initial date of transaction i.e ., 26/27-2-1992. He contended that the property in the suit bonds had never passed to SCB as there was no evidence of endorsement or delivery of the suit bonds. He extensively referred to the pleadings in the plaint in Suit No. 11/96 and highlighted the fact that what was pleaded in the plaint was non-delivery of the suit bonds. The only prayer made was for a decree against NPCL, which was holding the bonds as a bailee for CMF, since CMF had forwarded the original LOA to NPCL and sought registration of its name as holder of the suit bonds. He further highlighted the fact that a decree had been sought against only NPCL, as a bailee, though CMF was in constructive possession being holder of the receipt for lodging with NPCL. He also pointed out that the plaint sought the relief of refund of money from ABFSL as an alternative relief. It is his contention that at the most, the frame of the Suit could have been as a suit for specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he evidence of the plaintiff s witness, Kalyana Raman, employee of ABFSL, shows that only two persons, namely, himself and another officer of ABFSL, R.V. Shenoy, had dealt with such transac-tions. But neither officer claimed any personal knowledge of the suit bonds transaction. Further, that Kalyana Raman gave evidence that the dealers were mainly dealing with one Shiv Kumar, another officer of SCB, who might be in the know of the suit bonds transaction. Although, SCB took but a Chamber Summons for examining the said Shiv Kumar as he was posted at Singapore at the material point, the Chamber Summons was not pursued and Shiv Kumar was not examined. Thus, according to Mr. Kapadia, there is no evidence worth reliance placed on record to show how the deal was struck and the contract of the purchase of the bonds was brought about as the documents placed on record were hardly worth credence. That during the cross examination of Kalyana Raman, SCB was specifically called upon to produce on record the document showing HPD s involvement in the transaction and the learned counsel for SCB stated that there were no such documents in existence at all. Mr. Kapadia, therefore, submitted that no e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bonds by ABFSL on behalf of SCB. Mr. Jethmalani is right in his submission that this transfer has been accepted even by the Special Court. Mr. Jethmalani went to the extent of contending that even formal delivery of the original LOA was not an essential requisite to complete the transaction so as to effectuate the transfer of property in the suit bonds to SCB and whether the BR was duly discharged would hardly be a material fact, since the BR does recognise SCB s right and declares that the bonds were being held on behalf of SCB. We are, therefore, satisfied that there was transfer of the property in the suit bonds to SCB and the evidence on record is sufficient to arrive at such a conclusion. It was wholly unnecessary for SCB to go further and prove how the BR was discharged and how the LOA went out of its possession, which were the facts emphasised on behalf of CMF. Nor was it necessary for SCB to lead evidence as to how HPD had intercepted the original LOA, when and in what manner. 58. Turning to the argument that SCB could not be permitted to make an argument inconsistent with the pleadings on record, we need to see an order dated 2-7-1997 made by the Special Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knew that the said plea was involved in the trial, then the mere fact that the plea was not expressly taken in the pleadings would not necessarily disentitle a party from relying upon it if it is satisfactorily proved by evidence. The general rule no doubt is that the relief should be founded on pleadings made by the parties. But where the substantial matters relating to the title of both parties to the suit are touched, though indirectly or even obscurely, in the issues, and evidence has been led about them, then the argument that a particular matter was not expressly taken in the pleadings would be purely formal and technical and cannot succeed in every case. What the Court has to consider in dealing with such an objection is did the parties know that the matter in question was involved in the trial, and did they lead evidence about it? If it appears that the parties did not know that the matter was in issue at the trial and one of them has had no opportunity to lead evidence in respect of it, that undoubtedly would be a different matter. To allow one party to rely upon a matter in respect of which the other party did not lead evidence and has had no opportunity to lead evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this inference is correct. 63. Special Court laid great emphasis on Exhibit-7 (details of SCB s securities transactions during April 1991 - May 1992), which purportedly shows that on 9-5-1992 the suit bonds were sold to Andhra Bank (hereinafter referred to as "AB"). There is also SCB s deal slip No. 10729 showing that there was a sale of the suit bonds of the face value of Rs. 50 crores @ Rs. 91 to AB. According to SCB, entries in the deal slips from Nos. 10727 to 10735 were sham entries made in order to account for a large amount of money which HPD admitted to be owed to SCB and paid up by transferring Cantriple Units worth about Rs. 205 crores. SCB s explanation is that it had to show in its books, the receipt of this Rs. 205 crores and, therefore, a number of sham entries were recorded in deal slip Nos. 10727 to 10735 and were also indicated in Exhibit-7, AB being shown throughout as the counterparty and all such transactions being shown as direct . The learned counsel for SCB contended that these were sham entries in order to take into the books of SCB the large amount of Rs. 205 crores. 64. According to the FIR which is exhibited by CMF on record, by about 30-4-1992, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt is also clinching on this issue of the so called sale of the suit bonds on 9-5-1992 to ABFSL. Both sides have relied on the Janakiraman Committee Report, which is admitted in evidence as Exhibit-18. In the Fourth Interim Report, dated March 1993, in Paragraph 3.1( h ) there is a discussion of this entry in the Report. The Janakiraman Report says : "( h ) On 9-5-1992, Stanchart as per deal slip purchased units of Cantriple of face value of Rs. 45.5 crores @ Rs. 58.50 per unit from Andhra Bank for an aggregate cost of Rs. 266.18 crores. There is no record of this transaction in the books of Andhra Bank nor are there any cost memos available and no securities were received from Andhra Bank. On the same day, Stanchart as per deal slips sold PSU bonds aggregating Rs. 266.12 crores to Andhra Bank. (Refer paragraph 3.4 below). There is no record of these transactions in the books of Andhra Bank and no securities were delivered. A pay order No. 257131 for the difference of Rs. 0.06 crore was prepared but not delivered to Andhra Bank. These transactions appear to have been put through merely to cover up a gap in respect of various earlier purchase deals for which neither securities nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal LOA and the signed transfer deed by misappropriation in conspiracy with some officers of SCB. Mr. Jethmalani also relied on the affidavit filed by HPD before the CLB in which he had stated that he had borrowed the suit bonds from SCB. In our view, that affidavit has no meaning as the deponent refused to submit himself to cross-examination and the evidence given in the affidavit was not tested by cross-examination. We need not delve further into the issue as we have already stated that the issue is immaterial. 67. It is the stand of CMF that SCB lost its title to the suit bonds as a result of sale of the suit bonds on 9-5-1992 as consideration for its purchase of Cantriple Units worth Rs. 205 crores. While answering issue No. 6, the Special Court has clearly held that purchase of the Cantriple Units on 9-5-1992 had been proved but CMF had not been able to prove that the said purchase was against sale of the suit bonds on 9-5-1992. In the face of this finding, the argument of CMF that SCB lost title because it had sold the suit bonds in lieu of which it purchased Cantriple Units, has been rejected by the Special Court itself. 68. For these reasons, we are clearly of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable statute, namely, the Companies Act, 1956 they have been made capable of being dealt with as chattel. He relied on another passage in Halsbury s Law of England in support thereto 3 . Relying on Jagdish Narain v. Nawab Said Ahmed Khan AIR (33) 1946 PC 59, he further contended that since the Suit is one on title, the plaintiffs could succeed only on the strength of their own title; the defendants were not obliged to plead any possible defects in the title and they were entitled to avail themselves of any defect that such title showed subsequently. To similar effect were cited the decisions of this Court in Moran Mar Basselios Catholicos v. Most Rev. Mar Poulose Athanasius , AIR 1954 SC 526. Brahma Nand Puri v. Neki Puri AIR 1965 SC 1506 and L.J. Leach Co. Ltd. v. Jardine Skinner Co. AIR 1957 SC 357. Strong reliance was also placed on the observations of this Court in Chuharmal Takarmal Mohnani v. CIT AIR 1988 SC 1384 in relation to section 110 of the Indian Evidence Act, 1872. 71. Rebutting these arguments, Mr. Jethmalani contends that section 110 is contained in Chapter VII of the Indian Evidence Act, 1872, which deals with the burden of proof. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was, as between the alleged transferor or transferee, inoperative and of no effect. Relying on the judgment of the Chancery Division ( supra ) he contended that even when a blank transfer form is signed, there is no notice that the transferor is the owner and if the circumstances are such that the transferee is put on enquiry as to the bona fides of the transfer or the circumstances are such that the transferee must be deemed to have been put on such enquiry, then the transferee would not be a purchaser for value without notice of defect in the title of the transferor. He contended that even assuming CMF came into possession of the original LOA of the suit bonds together with blank transfer deeds, there would be clear notice that the transfer deeds were signed by someone other than the original owner of the suit bonds; if CMF had made the slightest enquiry, it would have learnt that the original owner (SCB), was not intending to transfer them to CMF. Thus, in his submission, CMF cannot be said to be a purchaser for value without notice. At all points of time, it had notice that whoever was delivering the original LOA with the blank transfer deed was not a person with full tit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CMF claimed that it had purchased the suit bonds from ABFSL by paying it consideration. In its written statement in the Suit, CMF took up the stand that it had purchased the suit bonds from HPD, who was acting on behalf of ABFSL or SCB. In its supplementary written statement, it contended that it bought the bonds from HPD acting for himself or ABFSL or SCB. Learned counsel contended that such a plea coming from a financial institution, which had entered into a transaction worth about Rs. 45 crores was utterly absurd and unbelievable. At no point of time did CMF state on record as to what was the representation made by HPD when he allegedly sold the suit bonds to CMF on 27-2-1992. It was not as if ABFSL was an unknown party, for the record shows that there were at least 23 transactions between CMF and ABFSL in November 1991 and 4 transactions even on 27-2-1992. Even after HPD filed his affidavit alleging that the suit bonds had been lent by SCB, CMF did not care to deny the contents of HPD s affidavit. As a banker, CMF knew that no transaction in securities could take place without a cost memo, or some other kind of documentation. This was a case where CMF has been unable to prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into a contract under which it purchased the suit bonds from ABFSL on 27-2-1992 with HPD as the broker. 76. Mr. Kapadia, learned counsel for CMF, relied on the judgment of a learned Single Judge of the Bombay High Court in Fazal D. Allana v. Mangaldas M. Pakvasa AIR 1922 Bom. 303 in support of his contention that, it is common practice in the share market that shares are transferred by mere delivery with a transfer deed signed in blank and that in such a situation there was no question of CMF being put to notice that there was anything irregular in the LOA of the suit bonds delivered to CMF by a transfer deed signed in blank by ABFSL. He, therefore, contends that this was a bona fide transfer consistent with the market practice. As a result of the Bombay High Court judgment, the authority of France s case ( supra ) was shaken, is the submission of the learned counsel. Relying on the judgment of this Court in Vasudev Ramchandra Shelat v. Pranlal Jayanand Thaker AIR 1974 SC 1728, it is pointed out that a transfer of property in securities, which is recognised by the TP Act, may be antecedent to the actual vesting of all or the full rights of ownership of shares and ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases and two sales on 27-2-1992. CMF alleged that on 20-11-1991 there were 19 sales and four purchases. The four purchases included the 13 per cent NLC bonds and 13 per cent MTNL bonds, which formed part of the consideration for purchase of the suit bonds on 27-2-1992. The evidence in support of its alleged purchase of 13 per cent NLC bonds and 13 per cent MTNL bonds is again somewhat convoluted. The Special Court held that out of the so called 19 sales alleged on 20-11-1991, 10 had been proved by the evidence led by CMF and jumped to the conclusion that thereby all 19 must be taken to have been proved. The Special Court observes: "The important point which the Court has to bear in mind is whether the Court should reject all the 10 sales which stands proved because the remaining 9 sales could not be proved. The answer is in the negative. The evidence in the form of 7 BRs; the evidence in the form of Andhra Bank Purchase Register, the evidence in the form of Andhra Bank Sale Register, and the evidence in the form of Exhibit-H as well as the evidence of PW-2 cannot be thrown overboard as bogus. These 10 transactions, as proved, shows that CMF is right in saying that they had sales on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -11-1991. Surprisingly, instead of CMF paying ABFSL the aforesaid amount, on the same day, two sums of Rs. 2,75,18,571.04 and Rs. 4,56,70,000 as evidenced by letter dated 20-11-1991 written by HPD to AB, came to be paid to CMF by HPD. It is evident that some of the existing documents with regard to various deals have been put together by CMF to patch up the story of consideration put forward by it. 82. Another strange document which shakes the credibility of the story of consideration set up by CMF is the letter dated 26-2-1992 from HPD to AB instructing AB to issue a bankers cheque in favour of CMF for a sum of Rs. 3,87,46,575.35 and debit his account. The actual number of the cheque is also shown on the document as 143941 dated 27-2-1992. There is also a statement of the RBI account of HPD with AB showing the debit of the aforesaid amount to the books of HPD in AB. The Special Court relies on this letter as evidencing the netting of the transactions between CMF and HPD on 27-2-1992. Mr. Jethmalani legitimately criticised the story of consideration put forward by CMF by urging that, if the aforesaid amount of Rs. 3,87,46,575.35 was the amount after netting, which had been arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI cheque received from ABFSL" in the transactions with ABFSL. Considering the evidence as a whole, it appears that the initial stand taken by the learned counsel of CMF in the first round of the litigation, that there was no credible evidence on which payment of consideration by CMF could be proved, was fully justified. The attempt of CMF on picking up and putting forward some of the documents, out of the several transactions entered into by them to patch up the story of consideration, in our opinion, has miserably failed. There was no cause for being charitable to CMF by saying that they could prove only a part of the consideration, ergo, rest of the transactions must be deemed to have been proved. We are of the view that every one of the arguments put forward by SCB to impugn the story of CMF that it had paid consideration is justified and the Special Court was wrong in rejecting the arguments of SCB on this count. We, therefore, hold that CMF has utterly failed to prove its story that it had paid consideration for purchase of the suit bonds on 27-2-1992. Conclusion 84. Finally, it appears that there is not much to choose between the two contending banks, namely, SCB a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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