{"id":166200,"date":"2000-04-18T00:00:00","date_gmt":"2000-04-17T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/standard-chartered-bank-and-anr-vs-custodian-and-anothe-etc-on-18-april-2000"},"modified":"2016-03-28T18:34:01","modified_gmt":"2016-03-28T13:04:01","slug":"standard-chartered-bank-and-anr-vs-custodian-and-anothe-etc-on-18-april-2000","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/standard-chartered-bank-and-anr-vs-custodian-and-anothe-etc-on-18-april-2000","title":{"rendered":"Standard Chartered Bank And Anr. … vs Custodian And Anothe Etc on 18 April, 2000"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Standard Chartered Bank And Anr. … vs Custodian And Anothe Etc on 18 April, 2000<\/div>\n
Bench: B.N. Kirpal, R.P. Sethi<\/div>\n
           CASE NO.:\nAppeal (civil)  762 of 1999\n\nPETITIONER:\nSTANDARD CHARTERED BANK AND ANR. ETC.\n\nRESPONDENT:\nCUSTODIAN AND ANOTHE ETC.\n\nDATE OF JUDGMENT: 18\/04\/2000\n\nBENCH:\nB.N. KIRPAL & R.P. SETHI\n\nJUDGMENT:\n<\/pre>\n
JUDGMENT<\/p>\n
2000 (3) SCR 81<\/p>\n
The Judgment of the Court was delivered by<\/p>\n
KIRPAL, J. The Reserve Bank of India noticed large-scale irregulari-ties
\nand mal-practices in transactions in both the Government and other
\nsecurities indulged in by some brokers in collusion with the employees of
\nvarious banks and financial institutions. The said irregularities and mal-
\npractices had led to the diversion of fund from banks and financial
\ninstitutions to the individual accounts of certain brokers.\n<\/p>\n
With a view to deal with this situation and in particular to ensure speedy
\nrecovery of the huge amounts involved, the Special Court (Trial of Offences
\nrelating to transactions in securities) Ordinance, 1992 was promulgated on
\n6th June, 1992. The said Ordinance has now been replaced by an Act known as
\nSpecial Court (Trial of Offences Relating to Transactions in Securities)
\nAct, 1992 (hereinafter referred to as ‘the Act’). Section 3 of the Act
\nenables the Central Government to appoint one or more Custodian for the
\npurposes of the Act. The Custodian has power under sub- section 2 of
\nSection 3 to notify the name of any person in the official gazette, who has
\nbeen involved in any offence relating to transactions in securities after
\nthe first day of April, 1991 and on\/or before 6th June, 1992. The effect of
\na person being so notified was that according to sub-section 3 of Section
\n3, notwithstanding anything contained in the Code of Criminal Procedure or
\nany other law for the time being in force, any property, movable or
\nimmovable or both, belonging to any person notified under that sub-section
\nstands attached simultaneously with the issue of the notification. The
\nproperty so attached is to be dealt with by the Custodian in such manner as
\nthe Special Court may direct.\n<\/p>\n
The Special Court is established under Section 5 of the Act to be presided
\nover by a sitting Judge of a High Court. The Special Court is to take
\ncognizance of or to try such cases as are instituted before it or
\ntransferred to it It is this Court which, under Section 9A, has the
\njurisdiction to exercise such power and authority which was exercisable
\nbefore the commencement of the Act by a Civil Court in relation to any
\nproperty standing attached under sub-Section 3 of Section 3 or in relation
\nto any matter or claim arising out of transactions in securities entered
\ninto after first day of April, 1991 and on\/or before 6th day of June, 1992,
\nin which a person notified under Section 3(2) is involved as a party, a
\nbroker, intermediary or in any other manner.\n<\/p>\n
On 8th June, 1995, respondent No. l the Custodian, who had been appointed
\nunder the Act, notified Hiten P. Dalai (respondent no. 2 in Civil Appeal
\nNo. 762 of 1999 and appellant in Civil Appeal No. 1878 of 1999) under
\nSection 3(2) of the said Act. The Custodian then got to know that some
\nshares and securities, which belonged to respondent no. 2, were in the
\npossession of the appellant bank. It also came to the knowledge of the
\nCustodian that the appellant bank had got some of the shares transferred to
\nits name. Correspondence was then exchanged between the Custodian and the
\nappellant bank whereunder the appellant bank was called upon by the
\nCustodian to either hand over the shares and securities to the Custodian or
\nthe bank should obtain an appropriate direction from the Court in case the
\nappellant bank was claiming any title to the said shares<\/p>\n
The demand of the Custodian requiring the appellant bank to hand over the
\nsaid shares which it had obtained from the notified party led the appellant
\nbank, which is incorporated under the laws of England and Wales and has its
\nHead Office at l, Aldermanbury Square, London, and the second appellant
\nwhich is an existing company under the Companies Act, 1956 and is a wholly
\nowned subsidiary of the Ist appellant, to file a suit No. 1958 of 1993 in
\nthe Bombay High Court. On transfer to the Special Court, the suit was
\nnumbered as Suit No. 3 of 1994. On 29th June, 1994, the appellants withdrew
\nsuit No. 3 of 1994 with liberty to file a fresh suit. It is thereupon that
\nthe appellants filed suit No. 17 of 1994 from where the present appeal
\narises.\n<\/p>\n
The case of the appellants in the plaint, inter alia, was that on 30th
\nApril, 1992, one Mr. Arvind Lal, an employee of the Bank, informed one Mr.
\nR. Iyer, a Director of the Local Currency Group, Investment Banking
\nDivision in the bank, that approximately Rs. 800 crores of investments made
\nby the appellant bank appellant through Hiten Dalai were not backed by
\nsecurities or banker receipts. How this short fall happened, was not known
\nto the higher officials of the appellant bank till lOth May, 1992.
\nThereafter enquiries were made by the appellant bank to ascertain the
\nshort-fall and efforts were made to recover the same. According to the
\nappellants the shortfall was ascertained to be in the region of
\napproximately Rs. 1300 crores. It was alleged that there were meetings
\nbetween the officials of the appellants and Hiten Dalai wherein the said
\nnotified party admitted and acknowledged his liability and he had given
\nvarious proposals for re-payment and delivery of various stocks in which
\nthere was a short-fall. According to the appellants Hiten Dalai did not
\nfulfil his commitments to deliver cash or stock. Hiten Dalal is alleged to
\nhave agreed to and deliver, between llth May, 1992 and 13th May, 1992,
\nvarious shares, securities, bonds and debentures (hereinafter referred to
\nfor the sake of convenience as ‘shares’). On 14th May, 1992 the Manager,
\nLegal Services of the Bank, advised that a letter should be obtained from
\nHiten Dalai in order to eliminate the possibility of his subsequently
\nclaiming that the said shares had been delivered by way of safe custody. A
\nletter containing the understanding between the parities was drafted by the
\nin-house lawyer of the appellant bank and was given to have it transcribed
\non his note paper. On 18th May, 1992 Hiten Dalai brought the draft to the
\noffice of the Bank where it was typed and signed by Hiten Dalai. It is an
\nadmitted fact that though the letter was signed on 18th May, 1992, the said
\nletter, however, bears the date of llth May, 1992.\n<\/p>\n
Alternative claims were put forth by the appellants in the said suit. In
\nthe first instance it was claimed that the shares, the details of which
\nwere mentioned in the annexure to the said letter dated 11.5.1992 and worth
\napproximately Rs. 145 crores, were delivered by Hiten Dalal in partial
\ndischarge of his liability to the appellant Bank in pursuance to the
\naforesaid agreement which was recorded in a note dated 18th May, 1992. The
\ncase of the appellants was that the bank is entitled to exercise ownership
\nright in respect of the said shares and to the accretions thereon which may
\nhave been received by the appellants. The appellants also sought a
\ndeclaration that Hiten Dalai had no right, title or interest in the said
\nshares and the same did not belong to him on the date of the notification.
\nIt may here be noted that the counsel for the appellants did not press this
\nclaim of ownership before the Special Judge.\n<\/p>\n
The second alternative claim by the appellants was that the said shares
\nwere validly pledged in favour of the appellant bank under the letter dated
\nl 1th May, 1992. In exercise of its rights as pledgees, the appellant bank
\nclaimed that the said shares had been adjusted against the admitted
\nliability of the second respondent to the appellant bank. It thus claimed
\nownership over the said shares. This plea also was not pressed by the
\nappellants before the Special Court inasmuch as it conceded that in law no
\nsuch right existed in a pledgee.\n<\/p>\n
The third alternative put fbrth in the plaint by the appellants was that
\nthe letter dated l1th May, 1992 created a valid and existing pledge of the
\nshares and that the rights, bonus aud the dividends received by the
\nappellants formed part of the pledge and constituted security for the
\nappellants. The appellant bank claimed that it was entitled to retain
\npossession of the shares and accretions thereon until the second respondent
\nsatisfied his liability towards the appellants. The appellants claimed a
\nright to sell the pledged shares and appropriate the sale proceeds towards
\npartial satisfaction of the outstanding liability of Hiten Dalai of Rs.
\n1253 crores. The appellants thus claimed that as pledgees they were endtled
\nto have the shares transferred in their names without the process of
\ncertification. By an amendment in 1996, another alternative claim put-forth
\nby the appellants was that the said shares, debentures, bank receipts,
\nbonds and securities and the rights and bonus received by the appellant
\nbank stood mortgaged to it. The appellants claimed that a sum of Rs.
\n30040885.00 expended by the appellant bank on purchase of right shares and
\nfor preservation of the mortgaged security formed part of the mortgage debt
\nThe appellants thus claimed that they were endtled to retain the mortgaged
\nshares and securities and the accretions received in respect thereof.\n<\/p>\n
The custodian in its written statement did not admit the correctness of the
\nfacts stated in the plaint. According to the custodian, Hiten Dalai was a
\nnotified party and the shares worth Rs.145 crores which were in the custody
\nof the appellants were the property of the said notified party. By virtue
\nof the provisions of the Act these shares stood attached as on the day when
\nthe name of Dalal was notified and the said shares could not be dealt with
\nby the appellants except by and under the directions of the court. The
\ncustodian denied that the appellants were entitled to any of their claims.\n<\/p>\n
In his written statement the defence which was, inter alia, taken by Hiten
\nDalal was that he was acting as a broker in securities and as such was
\ndealing with the appellants for the last four years. He did not admit that
\nthere was any short fall in respect of the transactions, which had taken
\nplace through him. He specifically denied that the purchases approximating
\nRs.1253 crores were not supported by delivery of stocks or acceptable bank
\nreceipts. On the contrary Dalai averred that the appellants had committed
\nseveral irregularities and were attempting to transfer the burden on him.
\nHe denied having accepted any liability to pay any amount to the appellant
\nbank or having admitted to the appellants having suffered any loss as
\nalleged or at all. With regard to the stocks and shares worth Rs.145 crores
\nwhich were lying with the appellants, the case of Dalai was that two
\nemployees of the appellants, namely, Ravi Iyer and Siva Kumar had forcibly
\ntaken away those stocks which had been lying in his office and which
\nbelonged not only to him but also to his wife and some of his customers.
\nDalai claimed that these officers threatened him that if hc did not
\ncooperate they would prosecute and ruin him. Dalai further alleged that his
\nsignatures were taken on blank documents and the appellants had wrong-fully
\nused those documents with blank signatures in order to foist a false claim
\nagainst him. He further alleged that on 18th May, 1992 under threat of
\nphysical torture, criminal prosecution and threat to that his life and that
\nhe would be ruined the appellants made him sign a letter dated llth May,
\n1992. In short he denied that he had voluntarily admitted any liability
\ntowards the appellants.\n<\/p>\n
On the basis of the pleadings the Special Court framed sixteen issues as
\nbetween the appellants and respondent no. l and another seventeen issues
\nbetween the appellants and respondent no. 2. U is not necessary, for
\ndeciding these appeals, to refer to the said issues inasmuch as the Special
\nCourt itself observed that though a number of issues had been raised there
\nwere only four questions which arose for consideration and they were; [i]
\nwhether the appellants herein had suffered a loss as claimed or at all;
\n[ii] whether respondent no.2 had given the said shares as securities and\/or
\nthe same were taken from him forcibly; [iii] if the said shares were given
\nas securities then the question would also be as to whether it was by way
\nof pledge or mortgage; and [iv] whether rights and bonus shares, dividend
\nand interest on the said shares formed part of secured assets.\n<\/p>\n
It rnay here be noted that before the Special Court counsel for the
\nappellants stated that he was not pressing the plea of pledge with right of
\nappropriation. He contended that the appellants were only pressing that in
\nrespect of the shares in question which they had in their possession there
\nwas either a mortgage or pledge in respect thereof.\n<\/p>\n
When the Special Court was framing issues relating to the question as to
\nhow the appellants had been able to prove the loss caused to them by Dalaa
\nand if so to what extent, the counsel for the appellants had contended that
\nDalai had admitted his liability in the said letter of llth May, 1992 and
\nother documents and, therefore, it was not necessary for him to prove the
\nloss. The Special Court over-ruled this submission but no speaking order
\nwas passed inasmuch as the counsel for the appellants informed that if the
\ncourt so desired the appellants would prove the loss. The court then
\nproceeded with the trial of the case on the basis that the loss stated to
\nhave been suffered by the appellants was not to be attempted to be proved
\nonly on the basis of the admissions of Dalai. The appellants proceeded with
\nthe trial claiming that loss had been caused to them by their having paid
\nmoneys in purchase transactions and their not having received deliveries of
\nstocks\/bankers receipts.\n<\/p>\n
The appellants led evidence in support of their case. On behalf of Dalai
\nthe court was given to understand that he will enter the witness box in
\norder to substantial his plea of physical torture, threat of criminal
\nprosecution, coercion etc. Ultimately Dalai chose not to give evidence
\nbefore the court. On 24th December, 1998, the Special Court delivered its
\njudgment and, inter alia, held that;\n<\/p>\n
(1)     the appellants had been able to prove loss totalling Rs. 280.80
\ncrores and that other losses alleged by the appellants were disproved;\n<\/p>\n
(2)     no coercion had been exercised by the appellants on Dalal;\n<\/p>\n
(3)     the letter dated llth May, 1992 addressed by Dalal to the
\nappellants created a pledge in favour of shares and said deben-tures,
\nparticulars of which were given in annexure to the said letter. The claim
\nof mortgage of the said shares was not accepted;\n<\/p>\n
(4)     the appellants were entitled to sell the original and right shares
\npledged to them in reduction ot” Dalal’s liability to the appel-lants;\n<\/p>\n
(5)     bonus shares and dividend and interest accrued on the original
\nshares pledged were not themselves the subject matter of the pledge and
\nmust be handed back by the appellants to the Custodian;\n<\/p>\n
(6)     Cantriple Units, referred to in the letter dated llth May, 1992,
\nreceived by the appellants from Dalai must be handed back by the appellants
\nto the custodian as the appellants had not succeeded in showing that they
\nhad any right, title or interest in respect thereto and nor had it been
\nproved that the said units had been pledged with the appellants.\n<\/p>\n
(7)     Costs of Rs. 30 lacs were awarded against respondent no. 2 and in
\nfavour of the appellants.\n<\/p>\n
Aggrieved by the findings of the Special Court in relation to the quantum
\nof loss suffered, the rights of the appellants in regard to bonus shares
\nand dividend and interest which had accrued on the original shares, which
\nhad been pledged, as well as the direction to hand over Cantriple Units to
\nthe custodian and lastly the strictures passed against certain employees of
\nthe appellants, appeal No. 762 of 1999 has been filed.\n<\/p>\n
Hiten P. Dalai has filed appeal No. 1878 of 1999 challenging the judgment
\nof the Special Court which had accepted the appellants claim regarding loss
\namounting to Rs. 280.80 crores. He also challenged the directions regarding
\nhanding over of the Cantriple Units by Standard Char-tered Bank to the
\ncustodian and lastly the challenge is to the costs of Rs. 30 lacs that had
\nbeen awarded against him.\n<\/p>\n
The four questions, which were considered by the Special Court, are what
\nanse for consideration in these appeals before us. We will first deal with
\nthe issue relating to the loss claimed to be suffered by the appellant bank
\nand its right to retain the securities, which were delivered to it.\n<\/p>\n
In the suit, which was filed, it was inter alia stated in the plaint that
\nthe appellant bank had suffered a loss of about Rs. 1253 crores on its
\ndealing with Dalal. It is on this basis that it sought to retain and
\nappropriate securities worth Rs. 145 crores which, admittedly, had been
\ndelivered by Dalal to the appellant bank between llth and 15th May, 1992.
\nThe claim of the appellant bank was based on the letter dated llth May,
\n1992 (Ex. G) in the suit. It has come in the evidence and it is not
\ndisputed that this letter was prepared by the officials of the appellant
\nbank and was signed by Dalal on 18th May, 1992. This letter, however, was
\nante dated to llth May, 1992. This letter addressed to the Standard
\nChartered Bank, Bombay reads as follows:\n<\/p>\n
“Dear Sirs,<\/p>\n
Re: Transactions in Govemment and other securities<\/p>\n
1.       In the past 4 years I have been acting as your broker for
\ntransactions in Government and other securities.\n<\/p>\n
2.       I am aware that you are in the process of reconciling your
\npurchases\/sales through me of Government and other securities and whilst
\nthe reconciliation is yet to be completed, you have ascertained as of date
\nthat the following purchases aggregating Rs. 1258 crores are not supported
\nby deliveries of stocks and\/ or bank receipts of banks acceptable to us.\n<\/p>\n
Type of Security    Transaction Value<\/p>\n
15 Crores units\tRs. 200 crores\t(Karad B. R.)<\/p>\n
9% IRFC (1\/1)\tRs. 385 Crores\t(Metro B. R.)<\/p>\n
9% IRFC (1\/4)<\/p>\n
Missing B. Rs.\tRs. 45 crores\t(various B.Rs)<\/p>\n
12.5% GOI 2007\tRs. 80 crores\t(Karad SGL)<\/p>\n
6% GOI 1994\tRs. 50 crores\t(Metro SGL)<\/p>\n
11% IDBI 2002\tRs. 20 crores\t(Metro B. R.)<\/p>\n
11.5% IDBI 2011\tRs. 47 crores\t(Karad B. R.)<\/p>\n
8.75% IDBI 2000\tRs. 23 crores\t(Karad B.R.)<\/p>\n
6 crore units\tRs. 90 crores\t(Metro B.R.)<\/p>\n
12% ICICI 2011\tRs. 50 crores\t(Metro B.R.)<\/p>\n
Cantriple\tRs. 205 crores\t(Physical)<\/p>\n
Cantriple (Expected)\tRs. 58 crores<\/p>\n
Rs. 1253 crores<\/p>\n
The letter further goes on to say that Dalai had delivered to the bank
\nstocks, shares, deposits etc., as listed in the annexure to the said letter
\nby way of securides towards the short-fall and\/or any further short-falls
\nwhich may be ascertained. The stocks and shares which were listed in the
\nannexure to this letter were the one which were handed over by Dalai to the
\nappellant bank between llth and 15th May, 1992 and were stated to be worth
\nRs. 145 crores, in respect of which, the present suit was filed. By this
\nletter Dalai further agreed to keep the appellant bank indemnified against
\nany loss which it might have incurred and\/or suffered upon the appellant
\nbank corapletion of final re-conciliation of its account with Dalal and he
\nundertook to make good any such losses either by payment in cash or by
\nphysical delivery of such other assets as the bank might require. The
\nletter also postulated that if on the completion of the re-conciliation,
\naggregate of the cash paid and the value of the assets delivered exceeded
\nthe amount of loss identified, then the Bank was to refund such excess to
\nDalai. He further confirmed and agreed that the appellant bank was
\nauthorised to sell the stocks, shares, debentures etc., which were handed
\nover to the bank and to appropriate the proceeds thereof to partly
\nliquidate his liabilities to the bank. If there was any short fall after
\nsuch appropriation, Dalal held himself to be personally responsible to pay
\nto the bank such balance as was outstanding.\n<\/p>\n
At this stage, we may notice that Dalal did not deny the execution of this
\nletter. His case in the written statement was that this letter and other
\ndocuments were got signed by the bank officials under threat or coercion.
\nHe had contended that the shares, securities etc., which were listed in
\nExhibit ‘G’ had been forcibly taken away by the appellant bank officials.\n<\/p>\n
The Special Court, after taking all the evidence into consideration, came
\nto the conclusion that the said shares etc., had not been forcibly taken
\naway from Dalal but he had, on the contrary, handed over these shares as
\nsecurity. In arriving at this conclusion, the special court held that it
\nwas unbelievable that the shares would be forcibly taken away from Dalal
\nbetween 11th and 13th May, 1992 and for a period of three days at least he
\nwould make no complaint or try to stop the appellants from taking away the
\nsaid shares forcibly. Admittedly, there had been a meeting between Dalal
\nand the Advocate of the appellants and the Special Court found it
\ninconceivable that force had been used at the time of taking away all the
\nshares forcibly.\n<\/p>\n
We have gone through the evidence and we agree with the aforesaid
\nconclusion of the Special Court to the effect that the contention of Dalal
\nthat the said shares were taken away from him forcibly is not correct. In
\nthe issues which were framed the onus of proof that the letter dated llth
\nMay, 1992 had been executed under threat of physical terror and criminal
\nprosecution was on Dalal. Hiten Dalal however chose not to enter the
\nwitness box in support of this plea. Not only did he not lead any evidence
\nin order to prove coercion, the appellant bank on the other hand examined
\nwitnesses who clearly proved that Dalal had not only signed the letter
\ndated llth May, 1992 but he also signed other documents to which we will
\npresently refer. As Dalal had failed to step into the witness box or lead
\nany evidence on his behalf, the Special Court rightly drew an adverse
\ninference against him.\n<\/p>\n
We must, therefore, proceed on the basis that Ex. ‘G’ even though prepared
\nby the employees of the appellant bank had been voluntarily and willingly
\nsigned by Hiten Dalal. We also proceedure the basis that the shares,
\nsecurities etc., had been delivered by Dalal to the appellant bank valued
\nat Rs. 145 crores between llth and 15th May, 1992. It is in this background
\nthat we must examine the claim of the appellant bank with regard to the
\nloss stated to have been suffered by it.\n<\/p>\n
On the basis of the evidence which was led before it, the Special Court
\nobserved that out of items of securities mentioned in Ex. ‘G’,
\nitems2,3,4,6,ll,12 and 13 were dis-proved. It held that “it is proved that
\nin respect of these items, there is no loss. The claim for Rs. 795 crores
\nthus stands disproved”.\n<\/p>\n
Having held that the claim for loss of Rs. 1253 crores was an exagger-ated
\nclaim, the Special Court further came to the conclusion that items 5,7,8 &
\n9 were also dis-proved or in any event, they could not be relied upon and
\nused for the purpose of calculating loss. It upheld the case of the
\nappellants with regard to items l and 10. Lastly, the Special Court, came
\nto the conclusion that on the basis of the evidence produced before it, the
\nappellants had made a payment of Rs. 201 crores for the purchase of units
\nof U.T.I. of the face value of Rs. 15 crores but had not received the said
\nsecurities. It also accepted the claim of loss of Rs. 79.80 crores which
\nwas evident by statement Ex. 19 which was produced in the court by the
\ncounsel for the appellants. The Special Court held that this statement Ex.
\n19 was tendered under Section 163 of the Evidence Act and the facts stated
\ntherein must be regarded as having been proved or binding on Dalal.\n<\/p>\n
It was submitted by Mr. K.K. Venugopal and Mr. K.S. Cooper, learned counsel
\nfor the appellants that for this case it was not necessary for the
\nappellants to have established loss of more than Rs. 145 crores. Mr. K.K.
\nVenugopal submitted that the appellants were not contending in these
\nappeals that the shares worth Rs. 145 crores had been given to the
\nappellants by way of mortgage. It was submitted that the said shares were
\npledged to the bank. He however, submitted that the evidence on record
\nwould show that the appellants had been able to prove that the liability of
\nHiten Dalal towards the appellants was Rs. 1253 crores. in any event, the
\nSpecial Court had accepted the claim of loss of the appellants to the
\nextent of Rs. 280.80 crores which was much more than the value of the
\npledged shares. It was submitted that with regard to the balance claim the
\nSpecial Court ought not to have given a positive finding that the same
\nstood dis-proved.\n<\/p>\n
Hiten Dalai, in the appeal filed by him, has challenged the acceptance by
\nthe Special Court of the loss of Rs. 280.80 crores stated to have been
\nsuffered by the appellant bank in its dealing with him. So far as the
\nCustodian is concerned, Mr. Shiraz Rustamjee, leamed counsel for the
\nCustodian, submitted that it accepted the loss of Rs. 201 crores which was
\nmore than sufficient to cover the value of the pledged shares of Rs. 145
\ncrores but he submitted that the decision of the Special Court in invoking
\nthe provisions of Section 106 of the Evidence Act and in holding that the
\nloss of Rs. 79.80 crores has been proved was not correct. In this respect
\nhe supported the submissions of Shri S. Ganesh, learned counsel on behalf
\nof Dalai.\n<\/p>\n
Before dealing with the correctness of the findings of the Special Court it
\nwill be appropriate to analyze the said letter dated llth May, 1992 Ex.
\n‘G’. As has already been observed, this letter was admittedly prepared by
\nthe officials of the appellant bank on the basis of inspection which had
\nbeen carried out. Para 2 of the said letter states in no uncertain terms
\nthat “as on that date the bank had ascertained that the following purchases
\naggregating Rs. 1258 crores are not supported by deliveries of stocks
\nand\/or bank receipts of banks acceptable to us”. The purchases which are
\nreferred to are the thirteen types of securities, total value of which
\naggregated Rs. 1253 crores. This means that there was an outgoing of Rs.
\n1253 crores from the appellant bank, in cash or in kind and thirteen types
\nof securities listed in para 2 of the said letter, in respect of which the
\noutgoing had taken place, had not been delivered or bank receipts in
\nrespect thereof given. It is to secure the delivery of these stocks and
\nshares that securities and shares worth Rs. 145 crores listed in annexure
\nto this letter were pledged to the appellant Bank.\n<\/p>\n
The Special Court Act, 1992 contemplates attachment of aill movable and
\nimmovable properties from the day when the party is notified. The attached
\nproperty is thereupon to be dealt with by the Custodian in such a manner as
\nthe Court may direct. The attached property is to be disposed off by the
\nCustodian under order of the Court and Section 11(2) specifies the
\nliabilities of the notified party which are required to be paid or
\ndischarged out of the proceeds of the properties of the notified party. It
\nwas, therefore, but right that the Court had to be satisfied by positive
\nevidence, and not merely on the basis of the admission of Dalal that the
\nappellant Bank had suffered loss inasmuch as “purchases aggregating Rs.
\n1258 crores are not supported by deliveries….” with the result that the
\nsecurities and shares worth Rs. 145 crores had been pledged in favour of
\nthe appellant bank.\n<\/p>\n
The loss of Rs. 201 crores qua item No. l in regard to the non-delivery of
\nRs. 15 crores units of U.T.I. of the face value of Rs. 150 crores was
\nproved through the evidence of Mr. Sanjay Pandit, PW 4. The documents which
\nwere produced in evidence for proving that the appellant bank had made
\npayment of Rs. 201 crores for the purchase of the said U.T.I. units, which
\nsecurities were not received by the appellant bank, was firstly a deal slip
\nNo. 7941 which showed purchase of these units from the Bank of Karad. In
\nrespect of this transaction, cost memo had been received by the appellants
\nfrom the Bank of Karad on 8. l. 1992. A transaction slip dated 8. l. 1992
\nshowing the purchase of Rs. 15 crores U.T.I. units at the rate of Rs. 13.40
\n(Ex. ‘B’- Vol. IV) per unit amounting to Rs. 201 crores was proved by PW 4.
\nAlso placed on record was the banker’s receipt dated 8th January, 1992 for
\na sum of Rs. 201 crores. Against this, on 8th January, 1992, there was a
\nsale of 9 per cent I.R.F.C. bonds of the face value of Rs. 210 crores. By
\npay order dated 8th January, 1992 bearing No. 231967, a sum of Rs. 199.79
\ncrores was paid to the Bank of Karad. Another document Ex. M is the receipt
\ndated 8th January, 1992 issued by the Bank of Karad acknowledging the
\nreceipt of Rs. 201 crores in respect of said U.T.I. units. In face of the
\nsaid evidence, Shri Ganesh was unable to persuade this Court that the
\ndecision of the Special Court in accepting the loss of Rs. 201 crores was
\nincorrect. This finding regarding the loss of Rs. 201 crores is affirmed.\n<\/p>\n
Now we come to the next item of loss which was accepted by the Special
\nCourt, namely, that of Rs. 79.80 crores mentioned as item no. 10 in Ex.
\n‘G’.\n<\/p>\n
During the cross-examination of the appellant bank witness PW 6, the
\ncounsel for the Hiten Dalal put him the following question:\n<\/p>\n
“Mr. Rao calls upon the plaintiffs to show any single transaction wherein
\nthe plaintiffs’ funds have been diverted by Mr. Hiten Dalai through bank of
\nKarad”. This question was put to the witness on 6th November, 1998.
\nThereafter on llth November, 1998, the said PW 6 tendered in evidence Ex.
\n19 (colly) which was a statement containing details of two transactions
\nwhich indicated that money had ultimately gone to the account of Dalal. One
\nof the transactions which was listed was item no. 10 of Ex. G. When this
\nstatement was tendered in evidence, the Special Court noted that the
\ncounsel for the appellants had kept in Court all the Deal Slips, Cost
\nMemos, Pay Orders and Banker Receipts. These were not marked as exhibits
\nbecause the counsel for Dalal stated that he had not called for these
\ndocuments and the said counsel had not taken inspection of the said
\ndocuments. The Special Court observed that this statement Ex. 19 had to be
\nregarded as having been tendered under Section 163 of the Evidence Act and,
\ntherefore stood proved and was binding on Dalai. The Special Court then
\nexamined the said Ex. 19 which showed that the appellants had purchased six
\ncrores units of the U.T.I. of the face value of Rs. 60 crores for Rs. 79.80
\ncrores from the Bank of Karad and had made payment of the same by Pay Order
\nNo. 231919 for Rs. 37.63 crores. This payment was made after netting of
\nsale of security to Bank of Karad. Ex. 19 further shows that in respect of
\nsaid transaction, the appellants had received a banker receipt No. 18 of
\nthe Metropolitan Co-operative Bank. Ex. 19 further showed that the money
\nwhich the appellants paid to the Bank of Karad was credited into the
\naccount of one Abhay Narottam in the Bank of Karad and thereafter, from
\nthat account, an amount of Rs. 36 crores was transferred\/ credited to the
\naccount of Dalal with Andhra Bank. The Special Court observed that even
\nthough the said statement established that Rs. 36 crores had been
\ntransferred into the account of Dalal, no evidence had been led by him to
\nshow why he had received Rs. 36 crores and\/or that it was under some
\ntransaction with the Bank of Karad. In the absence of such evidence, the
\nSpecial Court came to the conclusion that this money of the appellant bank
\nhad been siphoned out by Dalai. The Special Court further noted from Ex. 19
\nthat on 27th November, 1991 the appellant bank purchased 13 per cent
\nM.T.N.L. Bonds of the face value of Rs. 20 crores from the Bank of Karad
\nand by pay order No. 231079, a sum of Rs. 18.71 crores was paid by the
\nappellant bank to the Bank of Karad. A sum of Rs. 29.99 crores, which
\nincluded the aforesaid sum of Rs. 18.71 crores plus another sum of Rs.
\n11.27 crores, was transferred to the account of Hiten Dalai with Andhra
\nBank. The Special Court noted that in this case also it was shown that from
\nthe Bank of Karad an amount of Rs. 18.71 crores of the appellant’s bank had
\ngone to the account of Hiten Dalai. The Special Court further noticed that
\nin respect of this transaction relating to Rs. 18.71 crores regarding the
\npurchase of 13 per cent M.T.N.L. bonds, the appellant bank had not claimed
\nthat they had suffered a loss as the said transaction was not listed in Ex.
\nG. While not accepting the sum of Rs. 18.71 crores as being loss\/suffered
\nby the appellant’s bank, the Special Court accepted the loss of Rs. 79.80
\ncrores being the face value of six crores Units of the U.T.I. in respect of
\nwhich Rs. 37.63 crores had been paid but the said units were not received.\n<\/p>\n
It is contended by Mr. S. Ganesh, learned counsel for the respondent no. 2
\nthat the Special Court mis-understood and mis- conceived the provisions of
\nSection 163 of the Evidence Act. He submitted that Section 163 applied only
\nin the following three conditions:\n<\/p>\n
(i)     The specified documents must have been identified by the parties
\nconcerned;\n<\/p>\n
(ii)    That the parties must give notice to the other party to produce the
\ndocuments;\n<\/p>\n
(iii)   The said documents must have been produced and inspection thereof
\ntaken by the party who gave notice for the same.\n<\/p>\n
It was contended that these basic conditions, which are necessary for the
\napplication of Section 163 of the Evidence Act, had not been fulfilled and,
\ntherefore, the Special Court was not correct in admitting the said
\nstatement in evidence as Ex. 19.\n<\/p>\n
Mr. Rustomjee, learned counsel, who appeared on behalf of Custodian, also
\nsubmitted that Section 163 of the Evidence Act had been wrongly invoked in
\nthe present case.\n<\/p>\n
We are not inclined to go into the correctness of the decision of the
\nSpecial Court regarding the applicability of Section 163 of the Evidence
\nAct. Mr. Rustomjee, learned counsel submitted that as far as Custodian is
\ncon-cemed, he had chosen to accept the decision of the Special Court
\nwherein it had accepted the losses qua hem no. l stated to have been
\nsuffered by the appellant bank for a sum of Rs. 201 crores. No appeal has
\nbeen filed by the Custodian challenging the correctness of the decision of
\nthe Special Court accepting the loss of Rs. 79.80 crores. If the Custodian
\nhad felt aggrieved an appeal should have been filed. This not having been
\ndone it is not open to Mr. Rustomjee to submit that this part of the
\njudgement of the Special Court should be reversed. As far as Dalai is
\nconcemed, once the Special Court has come to the conclusion that there was
\nno coercion or undue influence in his signing letter dated llth May, 1992,
\nEx. ‘G’, it is then not open to him to contend and challenge the findings
\nof the Special Court which has accepted the claim of the appellant bank
\nwith regard to payment having been made in respect of the U.T.I. Units of
\nthe face value of Rs. 79.80 crores. This is more so when we find that the
\nSpecial Court has noticed that when the statement Ex. 19 was tendered in
\nevidence, the counsel for the appellant bank had kept in court all the deal
\nslips, cost memos, pay orders and banker receipts in respect of the said
\ntransaction. Dalai having accepted the fact that there had been a non-
\ndelivery of six crores units of the face value of Rs. 79.80 crores which
\nhad been purchased by the appellant bank, which is evident by his signing
\nEx. ‘G’, it is not open to him to contend that he does not accept the
\ncorrectness of the contents of the said letter. In our view, therefore,
\nwithout expressing any opinion on the correctness of the findings of the
\nSpecial Court with regard to the applicability of Section 163 of the
\nEvidence Act in the present case, the conclusion of the Special Court to
\nthe effect that six crores units of the U.T.I. of the face value of Rs.
\n79.80 crores had not been delivered to the appellant bank, even though it
\nhad made payment in respect thereof, does not call for any interference.\n<\/p>\n
With regard to the other items of securities referred to in Ex. ‘G’,
\nlearned counsel for the appellant bank invited our attention to Ex. ‘E’
\ncollectively which were hand-written notes signed by Dalai on 17th May,
\n1992 wherein he had undertaken to deliver various shares and securities of
\nthe total value of Rs. 900 crores. Keeping in view the fact that the
\nSpecial Court had observed that the appellant bank will have to prove the
\nextent of loss not on the basis of admission of Hiten Dalai but by leading
\nevidence on its own, we are of the opinion that the best evidence which
\ncould have been led in respect of the other items stated to have been
\npurchased and mentioned in Ex. ‘G’ was not led. Apart from the loss of
\naforesaid amount of Rs. 280.80 crores which has been accepted by the
\nSpecial Court and upheld by us, we would have expected the appellant Bank
\nto lead evidence to prove that it had paid sums of money and did not
\nreceive the securities mentioned in Ex. ‘G’. The main documentary evidence
\nwhich was led on behalf of the appellants in respect of those items was Ex.
\n‘G’ and the notes Ex. ‘E’ which contain the schedule for the delivery by
\nDalai of various shares which were to take place from 18th May, 1992, 19th
\nMay, 1992, 20th May, 1992 and 22th May, 1992. These notes are signed by
\nDalai. In addition thereto, there was to be conversion of bank receipts of
\nCanstars having valued at Rs. 10 crores. According to the appellant bank,
\nno such delivery took place. The appellant bank, however, did not lead any
\nevidence to prove that either in respect of the shares and securities
\nmentioned in Ex. ‘E’ or in respect of items mentioned in Ex. G, except for
\nitems l and 10, any payment had in fact been made by the appellants. The
\nclaim of loss in excess of Rs. 280.80 crores cannot be accepted.\n<\/p>\n
The Special Court, on the basis of the evidence before it, came to the
\nconclusion that except for sum of Rs. 280.80 crores, the balance claim of
\nthe appellants stood “dis-proved”. As we have already noticed, the suit was
\nfiled by the appellant bank because it had in its possession shares and
\nsecurities which had been lodged by Dalai as a notified party with the
\nappellant bank between llth and 15th May , 1992. The appellants had been
\nasked by the Custodian to establish its right to retain the said shares and
\nsecurities and this is the reason why the suit was filed. Even though in
\nthe plaint was said, and that is noted in Ex. ‘G’ itself that the appellant
\nbank had suffered a loss of Rs. 1253 crores for the purpose of establishing
\nits right to retain and sell shares and securities worth Rs. 145 crores, it
\nwas not necessary for the appellant bank to have proved the extent of total
\nloss which it had suffered. It was enough for the Bank to prove that it had
\npaid money in excess of Rs. 145 crores and had not received shares or
\nBankers receipt in respect thereof. This would give the Bank right to
\nretain the said shares as having been pledged to it.\n<\/p>\n
Undoubtedly the Special Court had required the appellant bank to prove by
\nindependent evidence as to what was the extent of loss suffered by it. One
\nof the issues between the appellant bank and the custodian, being Issue No.
\n2, was as to what was the extent of loss suffered by the Bank. The Special
\nCourt answered the issue by holding that the appellant bank had been able
\nto prove that it had suffered a loss to the extent of Rs. 280.80 crores
\nonly. Having come to this conclusion it would have been more appropriate,
\nin our opinion, for the Special Court to have observed that the appellant
\nbank had failed to prove loss in excess of Rs. 280.80 crores rather than
\ngiving a finding that the loss in excess of Rs. 280.80 crores stands dis-
\nproved. The loss which it had suffered was sufficient to enable it to
\nretain and dispose off the shares to the extent of Rs. 145 crores which had
\nbeen pledged with it.\n<\/p>\n
In respect of the pledged stock, right shares were subscribed and obtained
\nby the appellant bank, bonus shares and dividend and interest were also
\nreceived by it. in respect of this the two questions which arise are
\nwhether these accretions form part of the pledgedproperty and; secondly if
\nthey do not, then whether the Special Court should have directed the
\nappellant bank to hand them over to the Custodian.\n<\/p>\n
Before we deal with the main contention it will be pertinent to note that
\nin so far as the right shares were concemed, it was accepted by all the
\nparties that as the appellant bank had paid for these right shares the same
\nbelong to it and they were entitled to keep them irrespective of the
\nquestion whether they formed part of the pledge or not. The question of
\nreturn of right shares does not, therefore, arise in these appeals.\n<\/p>\n
As far as bonus shares are concemed it was submitted by Mr. Cooper, learned
\ncounsel for the appellant bank that they are not accretions and no issue
\narises whether they should be handed over to the appellant bank or to
\nDalai. It was submitted that as bonus share is only a piece of paper it has
\nno intrinsic value. Reliance was placed on the following passage from the
\ndecision of this Court in Commissioner of lncome Tax v. Dalmia Investment
\nCompany Ltd.,<\/a> [1964] 7 SCR 210 when in relation to the issue of bonus
\nshares it was observed as follows:\n<\/p>\n
“….it takes nothing from the property of the corpus and adds nothing to
\nthe interest of the shareholder. Its property is not diminished and their
\ninterests are not increased. The proportional interest of each shareholder
\nremains the same. The only change is the evidence, which represents that
\ninterest, the new shares and the original shares together representing the
\nsame propor_ional interest that the original shares represented before the
\nissue of the new ones. The Corporation is no poorer and the stockholder is
\nno richer than they were before. What has happened is that the plaintiffs’
\nold certificates have been split up in effect and have diminished in value
\nto the extent of value of the new.”\n<\/p>\n
This decision was followed by this Court in Hunsur Plywood Works Ltd. v.
\nCommissioner of<\/a> lncome Tax, [1998] l SCC 335.\n<\/p>\n
In our opinion the Court rightly came to the conclusion that bonus share is
\nan accretion. A bonus share is issued when the company capitalises its
\nprofits by transferring an amount equal to the face value of the share from
\nits reserve to the nominal capital. In other words the undistributed profit
\nof the company is retained by the company under the head of capital against
\nthe issue of further shares to its shareholders. Bonus shares have,
\ntherefore, been described as a distribution of capitalised undivided
\nprofit. Section 94 of the Companies Act refers to the power of a limited
\ncompany to alter its share capital. Under Section 94[l](a) it has power to
\nincrease its capital share while under sub-clause (d) it can sub- divide
\nits share into shares of smaller amount. Whereas in a case of sub-division
\nan existing share is simply divided or split and it may be argued that no
\nnew share or capital is created, but there can be Hole doubt that in the
\ncase of issue of bonus share there is an increase in the capital of the
\ncompany by transferring of an amount from its reserve to the capital
\naccount and thereby resulting in additional shares being issued to the
\nshareholders. A bonus share is a property which comes into existence with
\nan identity and value of its own and capable of being bought and sold as
\nsuch. Neither in Dalmia Industries nor in Hunsur Plywood’s case was this
\nCourt concemed with a question whether the bonus share could be regarded as
\nan accretion or not. This Court in those cases was only concerned with a
\nquestion relating to the valuation of the bonus share for tax purposes.\n<\/p>\n
On the other hand the Privy Council in Motilal Hirabhai and Ors. v. Bai
\nMani, AIR (1925) PC 86 had to consider as to whether the pledgee was
\nrequired to return to the pledgor, on redemption, bonus shares which had
\nbeen issued. The plea taken by the pledgee in that case was that the
\npledgee was only required to return the original shares which were pledged
\nand not the bonus shares which were received. Rejecting this contention it
\nwas held that the bonus shares were received as arising out of and
\nappertaining to the original shares and that it was impossible to contend
\nthat the right to these shares could be differentiated from the right to
\nthe original shares. Referring to Section 163 of the Contract Act the Privy
\nCouncil held that “These shares (bonus shares) are clearly accessions to
\nthe shares expressly pledged or hypothecated, and the pledgor or his
\nrepresentative, the present plaintiff, is entitled to recover the same.”
\nApplying the same logic it must follow that the dividend and interest which
\nwas received by the plaintiffs and which was relatable to the pledged
\nstocks must also be regarded as accretions thereto.\n<\/p>\n
It was then contended by Mr. Cooper that the bonus shares, dividend and
\ninterest, if they are regarded as accretions to the pledged stocks then
\nthey must also be regarded as forming part of the pledged property which
\ncould not be ordered to be handed over unless redemption takes place. In
\nother words, the submission was that the Special Court could not have
\npermitted the appellant bank to have retained the stocks originally pledged
\nbut at the same time directed that the accretions thereto should be handed
\nover to the custodian.\n<\/p>\n
Section 172 of the Contract Act provides that the bailment of goods as
\nsecurity or payment of a debt or performance of a promise is called pledge.
\nBailor being the pawnor and pawnee being the bailee. What is bailment is
\ndefined by Section 148 which, inter alia, provides that bailment is the
\ndelivery of goods by one person to another for some purpose, upon a
\ncontract that they shall, when the purpose is accomplished, be returned or
\notherwise disposed of according to the directions of the person delivering
\nthem. The person deliv-ering the goods is called the bailor and the person
\nto whom the goods are delivered is called the bailee. Section 160 provides
\nthat the goods bailed are to be returned by the bailee on expiration of
\ntime or accomplishment of purpose. Reading Section 172 with Sections 148
\nand 160 of Contract Act, it would appear that when goods are bailed for
\nsecuring payment of debt or the performance of a promise the bailor would
\nget a right for the return of the said goods when the purpose is
\naccomplished, namely, the debt is returned or the promise is performed. At
\nthe same time Section 176 provides for pawnee’s right when pawnor makes
\ndefault. This section reads as follows:\n<\/p>\n
“Pawnee’s right where pawnor makes default:- If the pawnor makes default in
\npayment of the debt, or performance, at the stipulated time, of the
\npromise, in respect of which the goods were pledged, the pawnee may bring a
\nsuit against the pawnor upon the debt or promise, and retain the goods
\npledged as a collateral security; or he may sell the thing pledged, on
\ngiving the pawnor reasonable notice of the sale.”\n<\/p>\n
This section not only gives the pawnee the right to retain the goods
\npledged as collateral security but also entitles the pawnee to sell the
\npledged goods after giving pawnor reasonable notice of the same. If the
\nproceeds of the sale are less than the amount due, the pawnor continues
\nliable to pay the balance. On the other hand if the proceeds realised on
\nthe sale being made are greater then the amount due the pawnee is under
\nobligation to pay over the surplus to the pawnor.\n<\/p>\n
According to Section 163 of the Contract Act, in the absence of a contract
\nto the contrary, the bailee is bound to deliver to the bailor or according
\nto his directions any increase or profit which may have accrued from the
\nbailed goods. It is indicated in the section that if a calf is born to a
\ncow then the bailee is bound to deliver the calf as well the cow to the
\nbailor. The custodian claims that as and when such accretions have taken
\nplace the pledgee has no right to retain the same.\n<\/p>\n
In this connection it was contended by Mr. S. Rustomjee, leamed counsel for
\nthe respondents, that Section 163 mainly provides that the bailee is bound
\nto deliver any increase in profit which may have accrued but the said
\nsection does not provide that such delivery is to be made only on
\naccomplish-ment of the purpose for which the goods are bailed. Had it been
\nthe intention that such accessions were to be delivered only at the time of
\naccomplishment of the purpose for which the goods are bailed, the
\nLegislature would have clearly provided for it. To buttress his argument he
\nsought to rely upon Sections 63 and 64 of the Transfer of Property Act
\nwhich provide that where the mortgaged property in possession of the
\nmortgagee has, during the continuance of the mortgage, received any
\naccession, the mortgagor, upon redemption, shall, in the absence of a
\ncontract to the contrary, be entitled as against the mortgagor to such
\naccession. It was contended that the words “upon redemption” are
\nconspicuous by their absence in Section 163 of the Contract Act. He further
\ncontended that Sections 163 to 173 of the Contract Act repeatedly referred
\nto the words “goods pledged” and indicated that the pawnee’s rights
\nincluding that of sale extended only to the goods pledged and not to other
\ngoods.\n<\/p>\n
While interpreting Section 3(3) of the Special Courts Act, 1992, this Court
\nin TejkumarBalakrishna Ruia v. A.K. Menon and Anr.,<\/a> [1997] 9 SCC 123 at
\npage 127, in paragraph 9, observed as follows:\n<\/p>\n
“It is perhaps necessary to make clear that the income or usufruct of
\nattached property is also attached property. Thus, if the property be
\nshares, dividends and bonus and rights shares thereon would also be
\nattached property. It is only income generated by a notified person by dint
\nof his own labour which falls outside the net of Section 3(3). In respect
\nof such income, the attachment under Section 3(3) does not operate.”\n<\/p>\n
If the accretions are regarded as property which come to existence after
\nthe date when the party was notified then in view of T.B. Ruia’s case
\nincome generated after the date of notification would fall outside the net
\nof Section 3(3). It, therefore, became necessary for this Court in T.B.
\nRuia’s case to observe in paragraph 9 that if the attached property is
\nshares then the dividends, bonus and rights shares would also be regarded
\nas attached property. If this be so then would pledge not extend to these
\naccretions to the shares which were pledged? In this connection it is
\nrelevant to notice that Story on Law of Bailment at para 292 has stated
\nthus: “By the pledge of a thing, not only the thing itself is pledged, but
\nalso, accessory, the natural increase thereof. As if a flock of sheep are
\npledged, the young, afterwards born, are also pledged.” This passage has
\nbeen relied upon by “Chitty on Contract”, 28th Edition at page 162 where it
\nis noted that “If during the pledge there is an increase in the value of
\nthe thing pledged, the pledgee is entitled to the increase as part of his
\nsecurity.” To the same effect is the view contained in Halsbury’s Laws of
\nEngland Vol.36 para 123 where it is stated in connection with the special
\nproperty of the pawnee “If during the contract there is any increase in the
\nvalue of the security, the pawnee is entitled to that increase as part of
\nhis security”.\n<\/p>\n
From the aforesaid it would follow that what Section 163 of the Contract
\nAct really means is that accretions in respect of the goods bailed cannot
\nbe a property of the bailee but must be returned when the goods themselves
\nbailed are returned. A necessary corollary to this would be that as the
\npledge extends to such accretions then when the pledged goods are retumed
\nthese accretions must also be given back. But if the pledge extends to such
\nnatural increase of the pledged goods it must follow that the pledgee would
\nnot only have the right to retain the said accretions but also have the
\nright to sell the same along with original shares pledged for the purposes
\nof realising amounts due to it and in respect of which the shares were
\npledged as a security. Not only will this be in line with the aforesaid
\nobservations of this Court in T.B. Ruia’s case but in arriving at this
\nconclusion we find support from the Halsbury’s Laws of England Vol .2 para
\n1524, where dealing with the bailee’s duty to account it was observed that
\n“When the return of the bailed chattel constitutes part of the bailee’s
\nobligation, he must restore not only. the chattel itself, but also all
\nincrements, profits and eamings immediately derived from it.” It would
\nfollow from the aforesaid that the accretions to the pledged property would
\ncontinue to be retained by the pawnee and, in the case of a notified party,
\nlike in the present case, the accretions to the pledged property would also
\nbe regarded as attached property to be dealt with in the manner in which
\nthe pledged shares have to be dealt with.\n<\/p>\n
It is not possible to accept the contention of the custodian that as and
\nwhen any accretion takes place the pawnee is under Section 163 liable to
\nhand over the accretion to the pawnor. U is true that the words “upon
\nredemption” as used in Sections 63 and 64 of the Transfer of Property Act
\nare not included in Section 163 of Contract Act but it is to be seen that
\nif the accredon is to be regarded as forming part of the bailed property
\nthen such accretion must remain with the pawnee and be dealt with by him in
\nthe same manner as the pledged shares. In other words the accretions form
\nan integral part of the attached shares as on the date of attachment, as
\nheld in T.B. Ruia’s case, and it follows that it would also be an integral
\npart of the shares when they were pledged and would, therefore, constitute
\na part of the pledged security. The appellant bank would, therefore, be
\nentitled to retain the same and deal with them as pledged stocks. The
\ndecision of the Special Court that the bonus shares, dividend and interest
\nwhich had accrued on the pledged shares were not themselves the subject
\nmatter of the pledge and must, therefore, be handed over by the appellant
\nbank to the custodian cannot be sustained.\n<\/p>\n
In the aforesaid letter dated llth May, 1992, Ex. ‘G’, item no.12 refers to
\nCantnple Units having a transaction value of Rs. 205 crores and item no. 13
\nwas shown as “Cantriple “accepted” having a transaction value of Rs. 58
\ncrores. Insofar as Cantriple Unites of the value of Rs. 58 crores are
\nconcerned, it appears that by an order dated lOth June, 1993, passed in
\nMiscellaneous Application No.29 of 1993, the Special Court directed the
\nappellant bank to hand over the said units to the custodian. This order has
\nattained finality and no contention has been urged in respect thereto.\n<\/p>\n
What now remains to be considered is the order of the Special Court
\ndirecting that the Cantriple Units of the value of Rs. 205 crores should be
\nhanded over by the appellant bank to the custodian. In arriving at this
\ndecision the Special Court dealt with the evidence which had been led by
\nthe appellant bank in respect of this item and observed that the appellant
\nbank had been taking contradictory stands in respect thereto. The Court
\ncame to the conclu-sion that no payment had been made in respect of these
\nshares and the case which was then sought to be put forth that the said
\nunits had been received as security was false.\n<\/p>\n
It does appear that the appellant bank has, in respect of Cantriple Units,
\nadopted varying and contradictory stands. While in the letter dated llth
\nMay, 1992, the tenor was that payment had been made but these units had not
\nbeen given, but in the letter dated 20th May, 1993, the stand taken was
\nthat these Cantriple Units formed part of the pledged securities. In
\nanother letter of I6th June, 1993, it was stated that these units were
\npurchased and set off against earlier transaction. A witness on behalf of
\nthe appellant bank gave evidence to the effect that the units were taken by
\nway of security and were not purchased at all.\n<\/p>\n
In the light of the said evidence the Special Court rightly came to the
\nconclusion that the appellant bank had no right to retain these units in
\ntheir possession. These units had to be regarded as being attached. We may,
\nhowever, note that in respect of these units Miscellaneous Application
\nNo.36 of 1993 had been filed by Can Bank Financial Services Ltd. before the
\nSpecial Court. The claim of Can Bank Financial Services was that the
\nappellant bank herein had forcibly taken away the said Cantnple Units. The
\nSpecial Court has in this case directed that these units should be handed
\nover to the custodian but the appellant bank may establish a claim to these
\nunits in any other proceedings. It may here be noted that the contention on
\nbehalf of the appellant bank was that pending before the Special Court were
\nSuit No. 9 of 1994, Suit No. 45 of 1995 and Miscellaneous Application No.
\n36 of 1993 where the question of title to these Cantnple Units was directly
\nin issue.\n<\/p>\n
The grievance of the appellant bank in these appeals is that the Special
\nCourt erred in giving detailed findings in respect of these Cantriple Units
\nand also erred in directing the appellant bank to hand over the said units
\nto the custodian because Cantriple Units were outside the scope of the
\nsuit. The fear of the appellant bank is that the findings of the Special
\nCourt with regard to the appellant bank’s right to retain these Cantriple
\nUnits may prejudice them in the other proceedings.\n<\/p>\n
In paragraph 50 of the plaint it has been categorically stated that the
\nsuit was restricted to seeking relief in respect of the shares, securities,
\ndebentures and bank receipts delivered between llth to 13th May, 1992. The
\nCantriple Units in question had been delivered by Dalai on 9th May, 1992.
\nThere is no specific issue, which was framed with regard to the question,
\nas to whether these Cantriple Units had been purchased by the appellant
\nbank or had been handed over to them by way of security. Once the Special
\nCourt has come to the conclusion that the appellant bank has not proved
\nthat Rs. 205 crores, representing the transaction value of these Cantriple
\nUnits, were paid for or were pledged, it was justified in directing handing
\nover of the said units to the custodian. Other proceedings specifically
\nrelating to these Cantriple Units are still pending before the Special
\nCourt, especially Miscellaneous Application No. 36 of 1993. Under the
\ncircumstances it would appear that the observations and findings of the
\nSpecial Court relating to the Cantriple Units, in the absence of evidence
\nbeing led before it by all the interested parties, can only be regarded as,
\nprima facie so as to enable it to come to the conclusion that the said
\nCantriple Units must be handed over to the custodian and his retention
\nwould be subject to the outcome of the other legal proceedings including
\nMiscellaneous Application No. 36 of 1993 and the appellant bank and other
\nparties would be entitled to try and establish their rival claims to get
\npossession of the said Cantriple Units.\n<\/p>\n
Leamed counsel for the appellant bank also submitted that the observa-tions
\nof the Special Court to the effect that there appeared to be some
\narrangement which subsisted between the appellant bank and Dalal were
\nunwarranted and uncalled for. We do not intend to make any observation in
\nconnection therewith because the Court has itself stated that it was merely
\na presumption, and not a finding, that the appellant bank had entered into
\nsome sort of a transaction in securities with Dalal with the understanding
\nthat they would get a fixed retum of 15 per cent on those transactions.
\nOnce the Court itself observed that” loss is not a finding but merely a
\npresumption”, the said observations cannot in any way adversely affect the
\nappellant bank or reflect as being a positive finding in respect of its
\nbusiness transactions. Perhaps the Special Court could have avoided the
\nsaid observation but, as we have already observed, these observations
\nshould not and cannot cau’e any prejudice to the appellant bank in any
\nother matter which is pending before the Special Court.\n<\/p>\n
It was submitted on behalf of the plaintiffs that the Special Court ought
\nnot to have passed strictures or made harsh observations against the
\nappellant bank. It was contended that the appellant bank was victim of
\nconspiracy between their employees and Dalal on account of which it
\nsuffered loss heavily. Services of several officers alleged to be involved
\nin the conspiracy were terminated by the appellant bank and criminal
\nproceedings were insti-tuted. This shows, it was contended, that when the
\nappellant bank got to know about the acts of its employees it acted in a
\nbona fide manner and no strictures should have been passed against it.\n<\/p>\n
While examining the evidence the Special Court has observed that the
\nappellant bank was creating false record, which was admitted by their own
\nwitnesses, and further that in the greed for profit the appellant bank was
\nflouting rules and regulations of the Reserve Bank of India. This and the
\nother observations made by the Special Court, though harsh, appear to be
\namply justified. In making these observations the Special Court took note
\nof the fact that according to the appellant bank’s own witnesses false
\nrecords were created in the case of 9 per cent IRFC Bonds to hide a hole
\nfrom the Reserve Bank of India. The false record, which was created, showed
\npurchase of Cantriple Units even when there was no transaction of purchase.
\nThis was done because inspection by the Reserve Bank of India was expected.
\nNone of the officers against whom observations have been made by the
\nSpecial Court have chosen to challenge the same. No orders need be passed,
\nin our opinion, with regard to the said observations of the Special Court
\nmade with reference to the officers of the bank who suddenly one day
\nrealised in May 1992 that the bank had made purchases of securities etc.,
\nfor Rs.1253 crores but in respect of which deliveries have not been made,
\nthe case which was set up in the letter dated llth May, 1992. If before
\nllth May, 1992 the management was unaware of the short fall of arrears
\nworth Rs.1253 crores, as claimed by the appellant bank, the strictures
\npassed and the observations made against the appellant bank by the Special
\nCourt were eminently justified.\n<\/p>\n
Hiten Dalai in C.A. No. 1878 of 1999 bas impugned the decision of the
\nSpecial Court upholding the appellant bank’s claim for losses\/deficiencies
\nto the extent of Rs. 280.80 crores. The decision of the Special Court in
\nthis regard has already been approved by us herein above and nothing more
\nneed to be said about this. One other contention which requires
\nconsideration relates to the awarding of the costs of Rs. 30 lacs by the
\nSpecial Court against Hiten Dalai. Arguing the appeal on behalf of Hiten
\nDalal, Mr. Ganesh contended that he has serious objection to the award of
\nthe huge costs of Rs. 30 lacs to Standard and Chartered Bank. He contended
\nthat it was the Standard and Charted Bank which has led evidence for all
\nalong 33 day s, the Special Court has given special findings that except
\nfor PW-4 the other witnesses of the bank had lied or prevaricated and in
\nrespect thereto severe strictures had been passed. As many as 11 claims put
\nup by the appellant bank had been rejected by the Special Court and that
\nthe Special Court had also found that the appellant bank had constantly
\nshifted their stand. It was contended that the award of costs of Rs. 30
\nlacs was grossly excessive and Hiten Dalai should not have been directed to
\npay this amount.\n<\/p>\n
The Special Court observed that it did not doubt that the appellant bank
\nhad incurred costs of over Rs. 2 crores. It then held that this was not a
\nfit case where actual costs should be awarded but it restricted the costs
\nto Rs.30 lacs. This represents 15 per cent of the costs actually incurred
\nby the appellant bank. It is to be noted that the plea of Dalai was that
\nsecurities had been taken away from him by the appellant bank’s officers by
\nforce and coercion. The appellant bank had, therefore, to lead evidence to
\ndisprove this case and to prove the circumstances under which the leter
\ndated llth May, 1992 Ex. ‘G’ was executed. The appellant bank’s claim of
\nloss of about Rs. 280 crores has been upheld and this being so the decision
\nof the Special Court awarding costs of Rs. 30 lacs cannot in any way be
\nregarded as incorrect.\n<\/p>\n
As a consequence of the aforesaid discussions and findings it follows that:\n<\/p>\n
(1) In Civil Appeal No.762 of 1999, filed by the Standard Chartered Bank
\nand Another:\n<\/p>\n
(a)     The decision of the Special Court holding that the appellants had
\nbeen able to prove loss to the extent of Rs. 280.80 crores is affirmed.\n<\/p>\n
(b)     Bonus shares, dividend and interest were accretions to the pledged
\nstock and have to be regarded as forming part of the pledged property which
\ncould not be ordered to be handed over unless redemption takes place.\n<\/p>\n
(c)     We hold that the letter dated llth May, 1992, addressed by Hiten P.
\nDalai to the appellants created a pledge in their favour not only of the
\nshares and debentures worth Rs. 105 crores, particulars of which were given
\nin the said letter, but also on the bonus shares, dividend and interest
\naccrued on the said pledged shares and debentures.\n<\/p>\n
(d)     In reduction of Dalal’s liability to the appellants, they are
\nentitled to sell the original shares, rights shares and the bonus shares
\nand also to retain the dividend and interest accrued on the original
\nshares.\n<\/p>\n
(e)     Cantriple Units referred to in the letter dated llth May, 1992
\nrepresenting transaction value of Rs. 205 crores shall be re-tumed to the
\ncustodian and his retention would be subject to the out come of the other
\nproceedings including Miscellaneous Application No. 36 of 1993 and the
\nappellants and other parties would be entitled to try and establish their
\nrival claims to the said units.\n<\/p>\n
(f)     The observations made by the Special Court with regaid to the
\nconduct of the appellants and their employees do not call for any
\nintetference.\n<\/p>\n
(g)    The award of costs by the Special Court for Rs. 30 lacs against
\nHiten P. Dalal is affirmed.\n<\/p>\n
(2)  Appeal No.762 of 1999 is partly allowed to the extent indicated above.\n<\/p>\n
(3) Appeal No. 1878 of 1999, filed by Hiten P. Dalal, stands dismissed.
\nParties to bear their own costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Standard Chartered Bank And Anr. … vs Custodian And Anothe Etc on 18 April, 2000 Bench: B.N. Kirpal, R.P. Sethi CASE NO.: Appeal (civil) 762 of 1999 PETITIONER: STANDARD CHARTERED BANK AND ANR. ETC. RESPONDENT: CUSTODIAN AND ANOTHE ETC. DATE OF JUDGMENT: 18\/04\/2000 BENCH: B.N. KIRPAL & R.P. SETHI JUDGMENT: JUDGMENT […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-166200","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nStandard Chartered Bank And Anr. ... vs Custodian And Anothe Etc on 18 April, 2000 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/standard-chartered-bank-and-anr-vs-custodian-and-anothe-etc-on-18-april-2000\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Standard Chartered Bank And Anr. ... vs Custodian And Anothe Etc on 18 April, 2000 - 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