REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5173 OF 2004
NARESH K. AGGARWALA & CO. ...APPELLANT(S)
VERSUS
CANBANK FINANCIAL SERVICES LTD. & ANR. ...RESPONDENT(S)
J U D G M E N T
SURINDER SINGH NIJJAR, J.
1. This Statutory First Appeal under Section 10 of the
Special Court (Trial of offences relating to Transactions in
Securities) Act, 1992 (in short the `Special Court Act’ ) is
directed against the judgment and decree dated 15.4.2004 passed
by the Special Court at Bombay in Suit No.4 of 1998.
2. The aforesaid suit was initially filed by the appellant in
the High Court of Delhi at New Delhi on its original side being
Suit No.1827/1993. It was transferred to the Special Court in
view of the appellant being notified on or about 17.6.1997
under the provisions of the Special Court and thereafter the
suit was numbered as Suit No.4/98 before the Special Court.
The appellant had prayed for money decree in the amount of
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Rs.3,18,06,868/- together with interest at the rate of 24%.
Respondent No.1, Can Bank Financial Services Limited, had
opposed the claim and also lodged a counter claim, claim and
decree in the amount of Rs.2,53,75,000/- from the appellant
with interest w.e.f. 22.4.1992. The appellant claims to be a
stock broker, being a sole proprietory concern of Mr. Naresh K.
Aggarwala. The respondent No.1, Can Bank Financial Services
Limited, is a wholly owned subsidiary of Canara Bank.
3. The appellant had prayed for a decree against respondent
No.1 in respect of net amount payable arising out of two sets
of transactions in shares i.e.; (i) two transactions in the
shares of Reliance Industries Limited (RIL) (ii) one
transaction in respect of Steel Authority of India Limited
(SAIL). It is claimed that on 14.2.1992 a contract was
entered into between the appellant and Can Bank for purchase of
one lakh shares of RIL at a price of Rs.154 per share inclusive
of all charges. On 23.3.1992 another contract was entered into
by the appellant with Can Bank for purchase of one lakh shares
of RIL at a price of Rs.375 per share net. On 27.2.1992 another
contract was entered into by the appellant for purchase of five
lakh shares of SAIL at a price of Rs.51 per share net and a
contract note was issued. In the plaint it was averred that of
the two lakh RIL shares purchased by the appellant only one
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lakh shares were delivered by respondent No.1. These shares
according to the appellant were appropriated towards the
contract dated 14.2.1992. It was the case of the appellant
that the balance one lakh RIL shares pursuant to contract dated
23.3.1992 have not been delivered by respondent No.1.
According to the appellant, respondent No.1 had been wrongly
claiming that the entire two lakh shares had been duly
delivered to the appellant. The appellant claims that this
fact is amply borne out from the various letters written by
respondent No.1 to the appellant wherein respondent No.1 claims
to have delivered one lakh shares to its Bombay office and the
remaining one lakh shares allegedly to a broker/one Mr. Hiten
P. Dalal. The appellant states that on inquiry Mr. Dalal has
sated that no such shares had been delivered on behalf of
respondent No.1. In communication dated 07.08.1992 respondent
No.1 acknowledges only one delivery and seeks intimation
whether his broker, Mr. Hiten P. Dalal, on their account has
delivered one lakh shares or not. Therefore respondent No.1
is, in fact, aware that no such delivery had been made.
Respondent No.1, in fact, in its communication dated 15.09.1992
acknowledges the factum of both the contract notes. In letter
dated 28.09.1992, the appellant reiterated that at no stage it
had received any share from Mr. Hiten P. Dalal on account of
respondent No.1. It was also stated that Mr. Hiten P. Dalal
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had confirmed that he had not given any Reliance shares on
account of respondent No.1 to the appellant. It was also
averred that in spite of assurances having been given by
respondent No.1 from time to time, the balance one lakh shares
were not delivered.
4. It was further claimed by the appellant that on 27.07.92
respondent No.1 was requested that the transaction with regard
to the SAIL shares should have been squared up at the time when
the shares were purchased. They were priced at Rs.51 per
share. The market rate, according to the appellant, on
27.7.1992 was Rs.130 per share. Therefore appellant asked the
respondent No.1 to credit Rs. 79 per share for five lakh shares
of SAIL to the account of the appellant-company. The
appellant claimed that by letter dated 17.09.1992 respondent
No.1 resiled from the contract regarding sale of shares of
SAIL. The appellant therefore by letter dated 19.09.1992 once
again requested for the cooperation of the respondents as the
delivery had to be effected within reasonable period of time to
avoid substantial losses. In this letter the appellant
reiterated that one lakh shares only had been delivered and no
other delivery had been made in respect of Reliance shares.
Against contract note dated 14.02.1992 Rs.1,54,000/- was
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credited to the account of respondent No.1 but the respondent
No.1 reiterated its stand in the letter dated 17.9.1992.
5. The appellant further stated that on 27.05.1993 respondent
No.1 issued a notice demanding an amount of Rs.2,56,25,000/- on
the basis of account maintained up to 08/02/1992. By letter
dated 14.06.1993 the appellant informed the respondent No.1
that after reconciliation of the account, the appellant was
liable to be paid by respondent No.1 an amount of
Rs.2,59,75,000/-. It was further claimed that according to the
statement of account of the appellant as on 31.7.1993 an amount
of Rs.3,18,06,868/- is due to the appellant from respondent
No.1. According to the appellant, respondent No.1 is liable to
pay this amount to the appellant with interest at the rate of
24 % per annum.
6. Respondent No.1 in his written statement took a
preliminary objection stating that the suit is wholly
misconceived and a fictitious claim has been put forward
solely with the intention of delaying or avoiding payment of a
sum of Rs.2,53,75,000/- and interest thereon to the answering
respondent No.1. It was also stated that along with the
written statement respondent No.1 is preferring a counter claim
against the appellant for the recovery of the aforesaid amount.
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The averments made in paragraph 1 to paragraph 6 of the plaint
were admitted by the respondents.
7. With regard to the other averments, it is however stated
that as averred by the appellant in the plaint both the parties
were maintaining running accounts with regard to the business
transactions with each other. The contracts dated 14.2.1992
and 23.3.1992 are admitted. It is however claimed by the
respondents that the contract dated 14.2.1992 was cancelled
rescinded by the appellant on the very day, namely, 14.2.1992.
It was also claimed that the claim made by the appellant with
regard to the running account is not correct. The running
account maintained by respondent No.1 shows a sum of
Rs.2,53,75,000/- as due from the appellant on 31.3.1993. Hence
the counter claim had been preferred in the written statement
itself. It is however, claimed that since the contract dated
14.2.1992 was cancelled, there was only one contract in
existence i.e. contract dated 23.3.1992 against which delivery
had been made. Therefore, nothing is payable by respondent
No.1 to the appellant on account of this contract. The version
of the communication between respondent No.1 and Shri Dalal as
given by the appellant is denied. The query dated 7.8.1992 was
necessitated to make sure that no wrong delivery or excess
delivery was made by the broker, Shri Dalal, in respect of the
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cancelled contract dated 14.2.1992. The appellant has tried to
take undue advantage of the query made by respondent No.1 for
the purpose of keeping the record straight. The appellant had
admitted the non-existence of the contract dated 14.2.1992 and
did not show the amount as outstanding. This position is
confirmed by the appellant in the statement of account signed
on 17.7.1992 and again reconfirmed on 24.8.1992. It is only
after the inquiry by respondent No.1 dated 15.9.1992 about the
position of one lakh shares that appellant got the mala fide
idea of seeking illegal advantage of the cancellation entry
having been recorded in respondent No.1 books. This is
particularly so because by then the share prices had gone up.
Under these circumstances the appellant submitted a revised
statement of account on 19.9.1992. According to respondent
No.1 the averments made in the plaint by the appellant do not
convey the true position. Once the contract dated 14.2.1992
was cancelled, the question of delivery did not arise.
Therefore nothing is payable by respondent No.1 to the
appellant on account of the contract dated 14.2.1992.
8. With regard to the contract in relation to SAIL shares,
the fact that the appellant entered into a deal with respondent
No.1 on 27.2.1992 for purchase of five lakh shares of SAIL at
the price of Rs.51 is admitted. It was however denied that a
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contract note was issued to evidence the transaction. It is
stated that the contract note was neither in accordance with
the prevalent practice, nor in accordance with the rules and
bye-laws of the Delhi Stock Exchange and the contract note is
also opposed to the law including the Securities Contracts
(Regulation) Act, 1956 and hence void ab initio. It is further
stated that the irregularity of the contract note was admitted
by the appellant himself in his letter dated 27.7.1992. It is
submitted that the contract itself being contrary to law, no
amount could be claimed by the appellant against this contract.
9. In the counter claim it was pleaded that the appellant has
admitted in paragraph 8(a)(i) that on 23.3.1992 a contract was
entered into between respondent No.1 and the appellant
whereunder the respondent No.1 agreed to sell and the appellant
agreed to purchase one lakh shares of Reliance Industries
Limited on 23.3.1992 at Rs.375 per share. This averment is
affirmed by respondent No.1. According to the respondent No.1
the aforesaid one lakh shares were delivered by respondent No.1
to appellant on 22.4.1992. This delivery has also been
admitted by the appellant. It is further stated that appellant
had wrongly contended after a long lapse of time that this
delivery was in respect of another alleged contract dated
14.2.1992. The appellant, according to respondent No.1, has
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illegally and wrongly accounted for its liability to pay to
respondent No.1 in respect of one lakh shares sold on 23.3.1992
only at Rs.154 per share instead of Rs.375 per share. Thus the
difference between the rate per share at Rs.375, which was the
actual contract rate, and the rate at which the appellant has
accounted for i.e. Rs.154 per share comes to Rs.2,21,00,000/-.
According to respondent No.1 this amount is payable by the
appellant to the respondent No.1 with interest. It is accepted
that there were dealings between the appellant and respondents
and the accounts were settled periodically. Therefore on
31.3.1993 the statement of mutual account between the parties
shows that a sum of Rs.2,53,75,000/- is due and payable by the
appellant to the respondent No.1. The interest at the rate of
24% from 22.4.1992 till 31.5.1994 amounts to
Rs.1,28,47,397.26/- which is also due and payable.
10. In its replication the appellant has reiterated the
averments made in the plaint. It is stated that the counter
claim is frivolous and is to delay and avoid payment of the
contractual obligations, of respondent No.1. The appellant
reiterates that the only one lakh shares of RIL were delivered
against contract dated 14.2.1992. It is denied that the
contract dated 14.2.1992 was cancelled by the appellant. It is
further reiterated that the respondent No.1 is liable to make
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delivery of the remaining one lakh shares; contract is to be
purchased by the appellant vide contract note dated 23.3.1992.
It is further stated that the appellant is still ready and
willing to perform his part of the contract but the respondents
are trying to wriggle out of their contractual obligations.
11. On the basis of the pleadings the Special Court framed the
following issues:
“1. Whether Plaintiffs prove that Rs.2,59,75,000/-
money is due from and payable by Defendant No.1 on
account of transactions undertaken on behalf of or with
Defendant No.1 after accounting for all transactions in
the running account as alleged in para 7 of the Plaint?
2. Whether Plaintiffs have correctly appropriated one
Lac shares delivered towards the contract note dated
14.2.1992 (i.e. for Reliance Industries Ltd. shares)
purchased @ of Rs.154/- as alleged in para 8a (ii) of
the Plaint?
3. Whether the Plaintiffs prove that no shares were
received from the broker of Defendant No.1 towards the
Contract dated 23.3.1992 as averred by the Plaintiffs
in para No.8a (iv) of the Plaint?
4. Whether the Plaintiffs have correctly given credit
of Rs.154/- per shares for one Lac shares delivered and
since one Lac shares have not been delivered as alleged
in para 8a (v) of the Plaint?
5. Whether the Contract dated 14th February 1992 for
purchase of 1,00,000 shares at the rate of Rs.154/- per
share of M/s. Reliance Industries Ltd. placed by the
Plaintiffs on Defendant No.1 was cancelled/ rescinded
as alleged by Defendant No.1 as alleged in paras 8 and
9of the Written Statement?
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6. Whether Plaintiffs’ contract note dated 27.2.1992
(SAIL) had been issued as per prevalent practice as
alleged in para 8b (ii) of the Plaint?
7. Whether Defendant No.1 by its letter dated
17.9.1992 has resiled from its contractual obligations
as alleged in para 8b (vi) of the Plaint?
8. Whether the Plaintiffs are entitled for a decree
or Rs.3,18,08,868/-?
9. Whether the Plaintiffs are entitled for interest
at the rate of 24% per annum?
10. Whether Defendant No.1 is entitled to payment of
Rs.2,53,75,000/- with interest as claimed in paras 1 to
4 and 8 of the Counter Claim?
11. What orders and decree?”
12. The Special Court notices that both the parties have filed
documents. On behalf of the appellant one witness has been
examined. The respondent No.1 has not led any evidence. It is
also noticed that some documents have been admitted in evidence
by consent of the parties. Issues Nos.2 to 5 were taken up
together as they relate to the transactions in RIL shares. All
these issues have been decided in favour of respondent No.1 and
against the appellant. It is further held that the transaction
dated 27.2.1992 was illegal and therefore is not capable of
being enforced. Therefore issues No.6 and 7 have also been
decided against the appellant. Issues Nos. 1, 8 and 9 have also
been decided against the appellant. It has been held that the
appellant is not entitled to make any claim neither in relation
to RIL shares nor in relation to SAIL shares. So far as issue
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No.10 is concerned, the Special Court has clearly held that the
counter claim of respondent No.1 succeeds and is allowed.
Therefore, a decree in an amount of Rs.2,53,75,000/- with an
interest at the rate of 12% per annum from 22.4.1992 till the
date of realisation is passed against the appellant. The
appellant was also directed to pay costs entitled to the
respondents.
13. The present appeal has been filed by the appellant being
aggrieved by the aforesaid judgment and decree. Mr. Rupinder
Singh Suri, learned Senior Counsel for the Appellant, had made
elaborate submissions in Court which have been reiterated in
the written arguments, filed later. He submits that the
impugned judgment in addition to being totally contrary to the
facts, records and law in general, is a classic case wherein
the prejudice against the appellant is writ large, owing to the
fact that he is a notified person. The Special Court has
totally disregarded the evidence adduced by the appellant in
support of its case. The counter claim has been erroneously
decreed merely on surmises and conjectures. It is also
submitted that the interest at the rate of 12% w.e.f. 22.4.1982
till realisation has been illegally granted without there being
any evidence in support. In support of his submission, Mr.
Suri, has relied on numerous documents which were on the
12
record. Mr. Suri has placed heavy reliance on the letter dated
7.8.1992 which pertains to the statement of account between the
parties for the period 1.4.1991 to 25.7.1992. According to the
learned counsel this letter will show that only one lakh shares
of RIL had been delivered. Therefore, respondent No.1 was
seeking confirmation that only one lakh shares had been
received by the appellant. This letter would also show that
respondent No.1 had intimated that suitable decision with
regard to contentions of the appellant on SAIL shares will be
given in due course. He then made a reference to letter dated
15.9.1992 written by one Ashok Kumar Kini, Executive Vice-
President of respondent No.1 wherein he stated that there were
two contract notes. This letter shows that even according to
respondent No.1 the physical delivery of one lakh shares at
Rs.375/- was made by the office of respondent No.1 at Bombay
and one lakh shares at Rs.154/- of RIL were delivered by Mr.
Hiten P. Dalal on its behalf. The appellant had replied to
the aforesaid letter on 19.9.1992 and reiterated that only one
lakh shares had been received. According to Mr. Suri on
21.9.1992 respondent No.1 wrongly claimed that appellant had
all along been maintaining that there was only one deal.
Therefore appellant through letter dated 28.9.1992 reiterated
its stand that on checking its account there seemed to have
been no record of receipt of any share from Hiten P. Dalal.
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Mr. Suri further submitted that in the written statement in
paragraph 8 respondent No.1 had wrongly claimed that the
contract dated 14.2.1992 had been cancelled. In fact there was
no evidence led by respondent No.1 on issue No.5 which was
relevant to this claim. In support of this learned counsel
relied on extract of the account for the period 1.4.1991 to
31.3.1992 which shows the existence of both the transactions.
Therefore according to Mr. Suri the respondent No.1 has wrongly
claimed that contract dated 14.2.1992 was cancelled. Finally
it is submitted by Mr. Suri that one lakh shares were adjusted
against the contract dated 23.3.1992 on the basis of trade
practice. As the appellant is a broker he has corresponding
commitments to every client. Mr. Suri submits that the Special
Court has wrongly concluded that it was for the appellant to
prove that the contract dated 14.2.1992 was not in existence.
Mr. Suri further submitted that learned Special Court has
wrongly concluded that the contract with regard to SAIL shares
being itself illegal could not be enforced in law. In fact
respondent No.1 had all along maintained that contract note
dated 27.2.1992 would be honoured in due course. It is only on
17.9.1992 that respondent No.1 for the first time tried to
wriggle out of the contract by stating that the transaction was
against law and hence void and unenforceable. According to Mr.
Suri this plea is not acceptable and there is no bar in law for
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entering into such a contract. The reliance placed by the
Special Court on the circular dated 27.6.1969 is totally
misplaced and contrary to the facts of the case. According to
learned senior counsel, Mr. Suri, the circular would not be
applicable to sale/purchase of securities on a contract for
cash. It was for this reason that statement of account of
respondent No.1 would show that the contract was alive till at
least 31.3.1992 when it was reversed in the books of accounts.
This, according to Mr. Suri, was just a ploy on the part of
respondent No.1 to escape its liability under the contract
dated 27.2.1992. Mr. Suri submitted that the bias of the
Special Court is evident from the manner in which only selected
pieces of evidence have been used to decree the counter claim
of respondent No.1. The evidence, which was in favour of the
appellant, had been ignored by the Special Court. According to
Mr. Suri this was clearly due to the undue importance attached
by the Special Court to the facts that appellant is a notified
person under the Act. It is further submitted by Mr. Suri that
there was no legal justification for awarding 12% interest to
respondent No.1 w.e.f. 22.4.1992 as there was no evidence in
support of such a claim. In any event the Special Court could
only grant interest from the date of the filing of the counter
claim and not from an earlier date. Mr. Suri submitted that
the Special Court also erred in law in coming to the conclusion
15
that the requisite averments to constitute a suit for damages
are absent in the present case. According to Mr. Suri a
perusal of the plaint would clearly show that it is a case for
damages arising out of breach of contract on the part of
respondent No.1. Mr. Suri then submitted that the Special
Court has wrongly drawn an adverse inference against the
appellant on account of non-production of the “sauda books”.
According to the learned senior counsel the sauda books were
not at all relevant for proving the case of the appellant.
There was ample evidence on record to show that respondent No.1
was guilty of breach of contract. Therefore, respondent No.1
was liable to make good the damages suffered by the appellant.
The appellant having produced the best evidence available, it
was not necessary to produce the sauda books at all. Therefore
the learned Special Court has wrongly concluded that the best
evidence rule would be applicable in the facts of the present
case.
14. On the other hand, Mr. Bhushan, learned senior counsel,
submits that the findings of the Special Court are based on
clear and cogent evidence. He has also made reference to the
correspondence between the parties and submitted that the
entire claim of the appellant is based on a deliberate
misreading of the same. Learned senior counsel relied on
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letter dated 17.7.1992 which shows that by that time the
Reliance shares were not on issue. This letter has been
written by the appellant to respondent No.1 and talks only of
the SAIL shares. In this letter appellant has, in fact,
admitted that the contract with regard to SAIL shares was
technically incorrect since contract relating to unquoted
shares would be outside the purview of Delhi Stock Exchange
Rules, By-Laws and Regulations. It is also admitted that the
shares at the relevant time were not quoted at any centre.
This admission is reiterated in the letter dated 18.8.1992
seeking to make clarification in response to the letter dated
7.8.1992. It was confirmed by the appellant that only one lakh
shares of RIL had been received from the Bombay office of
respondent No.1 and that no delivery was received from H.P.
Dalal. By letter dated 20.4.1992 it was clearly stated that
barring the outstanding transaction of five lakh shares of SAIL
there is nothing outstanding. Mr. Bhushan submits that the
letter dated 15.9.1992 is being misinterpreted by the appellant
which is merely an observation made by respondent No.1.
According to Mr. Bhushan by that time the scam had been
discovered, a new management had taken over and the letter had
been written on going through the records. Hence it was
observed that against two sale contracts of RIL, for one lakh
shares each, physical delivery had been given of one lakh
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shares by Hiten P. Dalal. To take advantage of the aforesaid
letter, the appellant writes the letter dated 19.9.1992 stating
that there were two contracts for two lakh RIL shares. Against
these two lakh shares, appellant had received only one lakh
shares which had been credited against the contract dated
14.2.1992. The appellant further claimed delivery of one lakh
shares under contract dated 23.3.1992. Having taken this stand
in its letter dated 14.6.1993 the appellant does not claim any
damages on account of non-delivery of one lakh shares against
the contract note dated 23.3.1992 at the rate of Rs.375/- per
share. The only plea is that delivery of one lakh shares has
been credited against the contract dated 23.3.1992. Therefore,
credit due to respondent No.1 would be only Rs.1,54,00,000/-
and not Rs.3,75,00,000/- as shown by the respondent No.1 in its
account. Mr. Bhushan further submits that even if the plea of
the appellant is accepted that the transaction has been shown
in the account as being incomplete, it still had to be
reflected in the sauda books. However during the course of the
trial sauda books were not produced and therefore an adverse
inference has been drawn against the appellant. With regard to
the SAIL shares, Mr. Bhushan submits that the contract was
contrary to law. The appellant was aware of this legal
position and admitted the same in the letter dated 27.7.1992.
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15. Upon consideration of the submissions made by the learned
counsel for the parties we have examined the material on the
record. It is not disputed before us that there were, in fact,
two transactions with regard to RIL shares dated 14.2.1992 and
23.3.1992. The Special Court notices that the appellant claims
to have adjusted the delivery of one lakh shares of RIL against
the contract dated 14.2.1992 which is said to have been
cancelled by respondent No.1. The Special Court also notices
that if the case of the appellant that the contract dated
14.2.1992 was alive is accepted, then the transaction will
remain incomplete and unfulfilled. The Special Court further
observed as follows:
“In my opinion, even without recording any finding
as to whether the contract dated 14-2-1992 was
cancelled on the same day or not, the Plaintiff
cannot be granted any relief in relation to the
contract dated 14-2-1992, assuming it to be
outstanding because the only relief that might
have been claimed by the Plaintiff if the contract
dated 14-2-1992 was unfulfilled contract was
relief for damages for breach of contract.”
16. The Special Court also upon reading of the plaint
concludes that it is not a suit filed by the appellant for a
decree in the amount of damages for breach of contract. In
our opinion, the aforesaid findings cannot be said to be
erroneous or based on no evidence. In fact in paragraphs 6
and 7 of the plaint the appellant had stated as follows:
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“6. The plaintiff and defendant No.1 have been
doing regular business over a fairly long period
of time and are maintaining running accounts
respectively.
7. The present suit is in respect of recovery of
money which is due from the defendant No.1 on
account of transactions undertaken on behalf of
with the defendant No.1 after accounting for all
the transactions in the running accounts and the
amount whereof has not been paid to the plaintiff
in spite of requests for the same.”
17. In the face of these averments, we find it a little
difficult to appreciate the submission of Mr. Suri that the
findings on these issues are erroneous or not supported by any
evidence. The Special Court also notices that the appellant
had, in fact, adjusted the delivery of shares towards the
contract dated 23.3.1992. It is true that in the examination-
in-chief appellant had stated that he had made the claim
against respondent No.1 on the basis of difference in price
of Reliance shares as on 14.2.1992 and as on 23.3.1992, i.e.,
Rs.375-Rs.154 for one lakh shares. In our opinion, the
Special Court has correctly observed that in the absence of
pleadings the statement made by the appellant had to be
ignored. We are also unable to accept the criticism of Mr.
Suri that the burden of proving the continuance of the
contract dated 14.2.1992 was not on the appellant. We may
notice here that respondent No.1 had taken a categorical plea
that contract dated 14.2.1992 was cancelled by appellant on
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the same day. The conduct of the appellant showing delivery
made on 22.4.1992 as delivery against the contract dated
23.31992 indicated that he was also treating the contract
dated 14.2.1992 to be cancelled. Had that not been so, he
would have made entries in the books of account to show that
the delivery of shares were against the contract dated
14.2.1992. In our opinion Mr. Bhusan, has rightly pointed out
that till 27.7.1992, the reliance shares were not in issue.
The letter written by the appellant to the Respondent No 1
talks only of the SAIL shares. Therefore it was for the
appellant to produce documentary evidence to show that in his
books of accounts the contract had been shown as incomplete.
But the appellant failed to produce the necessary evidence,
which led the Court to observe that:
“The burden was on the plaintiff to prove that the
contract dated 14.2.1992 remained incomplete. In
my opinion, therefore, it was for the plaintiff to
produce documentary evidence to show that in his
Books of Accounts the contract is shown as
incomplete. It becomes necessary for the plaintiff
to produce the document to show that the
transaction in his Books of accounts is shown as
incomplete. The conduct of the plaintiff of
showing delivery made on 22.4.1992 as delivery
made on 23.3.1992 indicates that he was also
treating the contract dated 14.2.1992 as
cancelled. Had that not been so he would have made
entries in the Book of account to show that the
delivery of shares were against contract dated
14.2.1992. ”
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In our opinion the view expressed by the special Court is an
acceptable view, and does not call for any interference.
18. With regard to issues no 6 & 7, we again do not find any
merit in the submissions of Mr. Suri. Admitted position is that
on the date when the contract with regard to the SAIL shares
was entered into, the shares were unlisted. It is also the
admitted position that on that day, the circular dated
27.6.1969 issued under Section 16 of the Securities Contract
Regulation Act 1956 was in existence and in force. Relevant
portion of the afore said circular reads as follows:
” S.O. 2561 In exercise of the powers conferred
by sub-section (1) of Securities Contract
(Regulation) Act 1956 (42 of 1956) the Central
Government being of opinion that it is necessary
to prevent undesirable speculation in securities
in the whole of India, hereby declares that no
person in the territory to which the said Act
extends shall save with the permission of the
Central Government enter into any Contract for the
sale or purchase of securities other that such
Spot delivery contract or
Contract for cash or
Hand delivery or
Special Delivery
in any securities as is permissible under the said
act and the rules, bye laws and regulations of a
recognized Stock Exchange.”
It is thus clear from the circular that after issuance of these
Circular, transactions into securities by (i) Spot delivery
contract; (ii) Contract for cash; (iii) Hand delivery and (iv)
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Special Delivery are only permitted. The term `spot delivery’
is defined in Section 2 (i) of the Act, which reads as under:-
“Spot delivery contract means a contract
which provides for :-
(a) actual delivery of securities and the
payment of a price therefore either on the
same day as the date of the contract or on
the next day, the actual period taken for the
dispatch of the securities or the remittance
of money therefore through the post being
excluded from the computation of the period
aforesaid if the parties to the contract do
not reside in the same town or locality;
(b)transfer of the securities by the
depository from the account of a beneficial
owner when such securities are dealt with by
a depository; ”
A perusal of the aforesaid definition would show that spot
delivery contract is the contract where actual delivery of the
securities and the payment of price is either on the same day
or on the next day. Admitted position is that the contract
note issued by the appellant in relation to this transaction
shows that it was not a spot delivery contract.
19. As regards the other types of contracts, the terms,
contract for cash, hand delivery or special delivery are not
defined by the Act. Therefore in terms of the circular dated
27.6.1969 quoted above, if the rules made under the act, bye
laws and regulations of a recognized Stock Exchange permit
contract for cash, hand delivery or special delivery, those
types of transactions would also be permitted by the circulars.
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The provisions of the bye-laws of Delhi Stock exchange clearly
permits spot delivery transaction, hand delivery transaction
and special delivery transaction. It was noticed by the Special
court that
“It was not even the case of the Plaintiff that
the transaction into SAIL shares in relation to
which contract note has been issued by the
plaintiff was either hand delivery, spot delivery
or special delivery contract.”
It was argued before the Special Court that the transaction was
a cash delivery contract. The Special Court negated such
contention, observing as follows:
“Firstly there are no pleadings to that effect.
There is no evidence to that effect and there is
no provision to that effect either in the
Act, rules framed by the Delhi Stock Exchange.
Therefore cash delivery contract unless it is
permitted by the Act, bye laws and regulations of
the Stock Exchange is prohibited by the
circulars.”
The appellant was aware of the illegality of the
transaction. It is evident from the letter dated 27th of July,
1992 written by the appellant to the respondent No.1 wherein it
is clearly stated that “technically this was incorrect since
contracts relating to unquoted shares would be outside the
purview of Delhi Stock Exchange rules, bye-laws and
regulations.” In the face of such an dmission, the Special
Court, in our opinion, has correctly concluded, as noticed
24
above. In our opinion the view expressed by the Special Court
does not call for any interference.
20. The contention that the circular did not apply to unlisted
securities was duly considered and rejected by the Special
Court. The Special Court thoroughly considered the term
`securities’ as defined in Section 2(h) of the Act. It reads as
under:-
“2(h) Securities include-
(i) shares, scrips, stocks, bonds,
debentures, debenture stock or other
marketable securities of a like nature in or of
any incorporated company or other body
corporate;
(ia) derivative;
(ib) units or any other instrument issued by
any collective investment scheme to the
investors in such schemes.
(ii) Government securities;
(iia) such other instruments as may be declared
by the central Government to be securities; and
(iii) rights or interests in securities; ”
Perusal of the above quoted definition shows that it does not
make any distinction between listed securities and unlisted
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securities and therefore it is clear that the Circular will
apply to the securities which are not listed on the Stock
Exchange. Admittedly the contract note issued in relation to
this transaction by the appellant does not show that it was a
spot delivery contract, therefore the transaction was clearly
contrary to the circular. Consequently in terms of the
provisions of Sub-section(2) of Section 16 the transaction was
illegal and is not capable of being enforced.
21. With regard to issues no 1,8 & 9, it was correctly
observed by the Special Court that the Plaintiff i.e.
Appellant herein is not entitled to make any claim either in
relation to the Reliance Industries Shares nor in relation to
contract for SAIL shares. Further as the appellant is not
entitled to claim any amount from the respondent on account of
the aforesaid transactions, there is no question of the
appellant being entitled to any interest.
22. On Issue No.10, Mr.Suri has submitted that the Special
Court has illegally allowed the counter claim of respondent
No.1. It was submitted that the Special Court has come to a
contrary conclusion even though the fact situation was
identical in the claim put forward by both the parties. We are
unable to accept the submissions made by the learned senior
26
counsel. Once it is concluded that the appellant is not
entitled to claim any amount from respondent No.1 in relation
to the aforesaid three transactions i.e. contract dated
14.2.1992, contract dated 23.3.1992 for one lakh RIL shares
each and contract dated 27.2.1992 relating to one lakh SAIL
share. It needed to be determined as to whether the appellant
in fact needed to compensate respondent No.1. In the counter
claim, the respondent No.1 clearly stated that the appellant
had agreed to purchase one lakh shares of RIL on 14.2.1992 @
Rs.154/- per share, but this contract was cancelled by the
appellant on the very same date. Thereafter, the appellant had
intimated about another contract for purchase of one lakh
shares of RIL on 23.3.1992 @ Rs.375/- per share. Against the
aforesaid contract, the delivery of one lakh shares was made
by the respondent No.1 to the appellant on 22.4.1992. After
the receipt of a letter dated 15.9.1992 when the Management of
respondent No.1 had changed, the appellant started claiming
that the delivery of one lakh shares on 22.4.1992 had been
adjusted against the cancelled contract dated 14.2.1992. The
respondent No.1 had based the counter claim on the difference
of price in shares between two periods of contract i.e.
14.2.1992 and 23.3.1992. The difference of amount of
Rs.2,21,00,000/- was claimed as the amount due from the
appellant to the respondent No.1. A perusal of the letter
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dated 27.5.1993, which contains a statement of account with
the subject “settlement of outstanding” clearly shows that the
respondent No.1 is claiming a sum of Rs.2,56,25,000/- as
outstanding against the appellant from various transactions as
per the details given therein. Against the entry dated
4.3.1992, there is a clear entry with regard to the sale of
one lakh RIL shares @ Rs.375/- per share given a total
consideration of Rs.3,75,00,000/-. The respondent No.1 had
clearly requested the appellant to settle account by paying
Rs.2,56,25,000/- immediately. In the letter dated 14.6.1993,
the appellant offered its comment on the statement of account
for payment by respondent No.1 on 27.5.1993. Herein, the
appellant states that the credit claimed by the respondent
No.1 should be Rs.2,21,00,000/- instead of Rs.2,56,25,000/-.
This balance was claimed by the appellant on the ground that
the credit claimed by respondent No.1 of Rs.3,75,00,000/- has
to be reduced by Rs.1,56,00,000/- i.e. the difference in price
of shares of the two contracts dated 14.2.1992 and 23.3.1992.
The appellant also claimed that a sum of Rs.2,95,00,000/- was
also required to be adjusted in respect of SAIL shares. The
appellant had claimed the difference in contract price of
shares of SAIL @ Rs.51/- per share against the official
quotation of the Delhi Stock Exchange @ Rs.110/- per share.
Thus he had claimed that respondent No.1 was liable to pay for
28
the difference of Rs.59/- per share (Rs.110/-Rs.51/- per share
amounting to Rs.2,95,00,000). It was held by the Special
Court, which finding has been affirmed by us, that the
contract with regard to SAIL shares being contrary to law was
void ab initio. Therefore, the appellant could not possibly
claim anything against the aforesaid SAIL shares on account of
any difference in the contracted rate and the rate when the
same were listed on the Delhi Stock Exchange. Therefore, the
irresistible conclusion was that the appellant was liable to
pay to respondent No.1 for the RIL Shares @ Rs.375/- per
share, the contract dated 14.2.1992 having been cancelled.
Thus the Special Court, in our opinion, correctly concluded
that the appellant was liable to pay to the respondent No.1
the amount of Rs.2,53,75,000/-. In view of the above, we find
no reason to interfere with the findings of the Special Court
on Issue No.10 also.
23. We also do not find any cogent reason to interfere or to
reduce the amount of interest awarded by the Special Court in
the peculiar facts and circumstances of this case.
24. Mr.Suri had submitted that the entire approach of the
Special Court was biased against the appellant simply because
the sole proprietor of the appellant was duly notified under
29
the Special Courts Act. We are of the considered opinion that
the aforesaid submission has to be merely stated to be
rejected. The allegations of bias and mala fide had to be
proved by cogent and clear evidence. In the present case,
apart from the bald submissions made by Mr.Suri, no material
was placed on the record to indicate that the judgment of the
Special Court was coloured, let alone being affected by any
bias. It seems to have become a common practice these days for
the losing party after receiving an unfavourable verdict, to
make allegations of bias against the Presiding Officer. We
decline to give any credence to such wild and bald submissions
without any factual basis.
25. In view of the above, we find no merit in this appeal and
the appeal is dismissed. No order as to costs.
…………………..J.
[B.Sudershan Reddy]
New Delhi;
…………………..J.
May 05, 2010. [Surinder Singh Nijjar]
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