CITI BANK N.A.versusSTANDARD CHARTERED BANK AND ORS.

                         CITIBANK N.A.                                       A
                               v.
               STANDARD CHARTERED BANK AND ORS.

                             OCTOBER 8, 2003

                 [R.C. LAHOTI AND ASHOK BHAN, JJ.]                           B
         Contract Act, 1872-Section 63-Performance ofContract-Transfer
   of Bonds-By one Bank to another Bank-Subsidiary General Transfer
   Form given by first bank in favour ofsecond bank-Dishonoured-Further
   transfer of the Bonds in favour of third Bank-Bankers Receipt given in C
   lieu of the Bonds-Bankers Receipts duly discharged returned by third
   Bank asking for Subsidiary General Ledger transfer in favour of second
   Bank from the first Bank-Demand was voluntary with knowledge about
   the dishonour-Ledger given-Interest on the Bonds received by third
   Bank from a third party-After 9 months of transaction, demand of Bonds D
   or money in lieu of it by third Bank from second Bank-Second Bank
   stating that liability to deliver Bond stood discharged on delivery of the
   Ledger-Suit by third Bank demanding delivery ofthe Bonds-Name ofthe
   party from whom it got interest on Bonds not disclosed-Suit by Second
   Ban.k on plea that in case of decree against it in suit by third Bank, it was
   entitled for decree against first Bank-Both suits decreed by Special E
   Court-On appeal, held: Second Bank was discharged of its obligation to
   deliver the Bonds-The obligation was substituted by delivery of Bankers
   Receipts-Duly discharged Receipts raised rebuttable presumption that the
   Bank had discharged its obligation which the third Bank failed to
   dislodge-Adverse inference could be drawn against third Bank failed to F
   disclose material fact in the suit-Evidence Act, 1872--Section 114
   illustration (i) and (g).

         Can bank Mutual Fund (CMF) purchased securities (11.5% GOI
    2009 Bonds) from the Bank of Karad and the same was purchased
    from CMF by Citi Bank. Total consideration was paid and CMF G
    handed over their Subsidiary General Ledger (SGL) Transfer Form
    to Citi Bank in order to enable it to get the securities transferred in
· " their name in the Ledger maintained by CMF with Reserve Bank of
    India (RBI). On presentation of SGL Transfer Form with RBI, the
    same was dishonoured due to insufficient balance. Citi Bank agreed to H
                                      489
    490                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A sell the Bonds to Standard Chartered Bank (SCB) against receipt of
   purchase price i.e. 50 crores which was duly paid by SCB. Since the
   Bonds were not ready, Citi Bank issued two Bankers Receipt (BRs)
   dated 18th and 19th September 1991 with understanding that the
   Bonds will be delivered when ready in exchange of the BRs. SCB by
B a letter dated 19.9.1991 requested Citi Bank to deliver the SGL Forms
   issued by CMF in exchange of the two BRs. Along with the letter SCB
   sent the two BRs. Citi Bank delivered the SGL Forms issued by CMF
   in its favour of the face value of Rs. 44.8505. crores and their own SGL
   Form of the face value of Rs. 5,41,95,000 in exchange of the two BRs.
C On 8.10.1991 SCB addressed a letter to CMF requesting it to issue a
   fresh SGL Transfer Form in its name in lieu of SGL Transfer Form
   received by it from the City Bank. During trial CMF denied to have
   received the letter dated 8.10.1991. SCB also received the interest on
   the Bonds from a third party whose name was not disclosed by it in
D ·the plaint. SGL Form of City Bank was duly encashed by SCB. Nine
   months· after the transaction, SCB sent a notice to City Bank to
   handover to. SCB, consideration of Rs. 44,8505 crores with further
   interest in respect of the Bonds as the same were not delivered to
   them. Citi Bank replied to the notice that its liability to deliver the·
E Bonds under the contract stood discharged on delivery of SGL Forms
   to them.

         SCB filed a suit in Federal Court, New York, as well as in a High
    Court in India. The suit in Federal Court was dismissed in view of the
    Suit in India. Plea of SCB in the suit was that it did not receive the
F   Bonds; that Citi Bank impliedly warranted that CMF would transfer
    the Bonds and on its failure Citi Bank was obliged to deliver the same;
    that action of Citi Bank was fraudulent and amounted to deceit : and
    that "useless" and "worthless" SGLs were given by City Bank. Citi
    Bank filed suit in Special Court against SCB, CMF and its Trustees
G   pleading that in th~ event of decree being passed against it in s1;1it filed
    by SCB, it was entitled to a decree against CMF. Suit pending in High
    Court was also returned to the Special Court. In written statement in
    the suit filed by Citi Bank, SCB took additional plea that SGL sought
    by SCB was an SGL of CMF in favour of SCB and not the one drawn
H   in favour of Citi Bank.
         CITIBANK N.A. v. STANDARD CHARTERED BANK                    491

     City bank pleaded that SCB on its own volition had asked for and A ..:
taken SGL of CMF and returned the two BRs duly discharged and
hence it was not under any obligation; that obligation to deliver Bonds
under BRs wns substituted by delivery of SGL of CMF.

     Special Court held in the suit of the Citi Bank that its liability was B
not discharged and same could be discharged only on delivery of the
Bonds; and that the remedy of SCB was not against CMF; that Citi
Bank's claim against CMF was justified. The decree was made
contingent upon the result of the suit filed by SCB. The suit of SCB
was decreed holding that it had the cause of action against the Citi C
Bank and Citi Bank was not discharged of its obligation.

      In appeal to this court, Citi Bank contended that it stood
discharged from its obligation to deliver the Bonds under Section 63
of the Contract Act, 1872 as SCB on its own asked and voluntarily and
unconditionally accepted the two SGLs of CMF from Citi Bank as             P
satisfaction knowing it fully well that under such SGLs it could not
obtain the Bonds from Public Debt Office and that the same had been
dishonoured by RBI and it was not transferable; that the plea that the
SGLs were "useless and worthless" were not tenable as it accepted the
dishonoured SGLs without any protest and also received interest from E
an undisclosed third party; that an adverse inference could be drawn
against SCB as it failed to disclose material facts in the suit and failed
to explain the delay of 9 months in approaching Citi Bank; that since
Citi Bank, as per decree was required to pay value of securities
alongwith interest and in return getting the Bonds worth face value of F
Rs. 44,8505 crores, the value of which in the market was at a discount,
Citi Bank incurred loss of Rs. 12,94,66,022.419.

     SCB contended that there was only one contract between Citi
Bank and SCB i.e. to give the Bonds, BRs were not independent of the G
contract, SGLs of CMF was taken by SCB as a step-in-aid for delivery
of Bonds; that an implied warranty must be read in the transaction
asking for and accepting the SGLs of CMF; that principles of contractual
interpretation mandate that interpretations adopted, be reasonable
and arise out of natural and probable course of human conduct and
Courts should not adopt an interpretation out of context with the H
    492               SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A commercial dealings between the parties and in the manner unknown
    to trade and commerce; that it would be contrary to the normal,
    natural and probable course of banking business to deduce that SCB
    would be satisfied with neither the Bonds nor the monies thereof but
    with SGLs having no value; that letter dated 19.9.1991 be interpreted
B   in the context that it wanted the SGLs in its favour and not the one
    in favour of Citi Bank; that on return of BRs worth 50 crores, SCB
    could not be understood to have asked for dishonoured third party
    SGLs of Rs. 44.58 crores; SCB having proved not receiving the Bonds
    despite having paid the amount, the onus fo prove novatio or discharge
C   by substitufion or satisfaction was on the Citi Bank which it failed to
    discharge; that where a cheque, pro note or Bankers Receipt is accepted
    in satisfaction, there is a presumption that such acceptance was only
    as a 'conditional discharge' and not 'absolute discharge' of performance;
    that conditional discharge having failed, SCB could fall back upon the
    original consideration; that receipt of interest by third party was of no
D   consequence; that in order to do complete justice between the parties
    SCB could be asked to make good the loss if any suffered by Citi Bank;
    that CMF should not be unduly benefited.

          Allowing the appeals, the Court
E
           HELD : 1.1. Production of two Bank Receipts by the Citi Bank
    raised a rebuttable presumption that CiH Bank had discharged its
    obligation under the two BRs which the SCB failed to dislodge by pleading/
    leading any evidence to show the circumstances under which the two
F   BRs were returned. In the absence of any explanation by the SCB either
    in its plaint or the written statement as to why it had asked for and took
    dishonoured SGL ofCMF in exchange of two BRs raises a pr~sumption ·
    under Section 114, illustration (i) that Citi Bank was discharged of its
    obligation under the BRs i.e. to deliver the Bonds. It cannot be said that
    there was nothing on the record to show that there was an absolute
G   discharge granted by the Citi Bank to the SCB because the two BRs were
    returned with the stamp of SCB duly signed by an officer of the SCB
    authenticating that it had been discharged. [514-F-G, 514-A]

          Chaudhri Mohammad Mehdi Hasan Khan v. Sri Mandir Das, L.R.
H 39 Indian Appeals 184, relied on.
         CITIBANK N.A. v. STANDARD CHARTERED BANK                 493

       1.2. SCB has not disclosed any particular or even the name of the A
  person from whom or the circumstances under which it obtained
  interest on the Bonds. An adverse inference should be drawn against
. the SCB to the effect that if these facts were disclosed it would have
  been proved that SCB had taken the SGL of CMF for its own benefit
  or at the behest of the third person from whom it had received the B
  interest. That third person treated the SCB as the beneficial owner of
 Bonds and therefore entitled to interest on it. Failure on the part of
 the SCB to show from whom it had received the interest would raise
 a presumption that the SCB had failed to disclose/produce a material
  piece of evidence wh~ch wquld have thrown much light on the issue in C
 controversy. [515-B-D, 516-C-D]

     TS. Murugesan Pillai v. MD. Gnana Sambandha Pandara Sannadhi
and Ors., AIR (1917) PC 6; Bi/tu Ram v. Jainandan Prasad, Civil Appeal
No. 941 of 1965, decided on 15.4.1968; Gopal Krishnaji Ketkar v. D
Mohammed Haji Latif and Ors., AIR (1968) SC 1413, relied on.

      1.3. It cannot be said that there was only one contract between
SCB and Citi Bank and that was to deliver the Bonds for which it had
paid valuable consideration or that the BRs issued by the Citi Bank
were not independent of the main contract to supply tht°Bonds. SCB E
had taken the SGLs ofCanbank with the clear intention that it wanted
to exchange the BRs of Citi Bank with SGLs of Canbank. SCB was to
get the Bonds in exchange of two BRs but SCB instead substituted that
satisfaction by asking for and taking unconditionally the SGL of CMF.
The obligation to deliver the Bonds under BRs, was substituted by F
delivery of SGL of CMF. [516-E-G)

     1.4. Proximity of the dates of BRs and letter of SCB dated
19.9.1991 clearly indicates that the intention of the SCB was to buy the
SGLs ofCanbank Mutual Fund otherwise they would not have written G.
the letter on 19.9.1991 itself. Proximity of these two dates and the
manner in which the whole transaction was completed indicates that
it was done with a purpose or a design. It has not been explained as
to how did SCB know that the Citi Bank had in its possession the SGL
of CMF. SCB must have known, being a big banking business H
    494               SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A company, that the SGL issued by the CMF in favour of the Citi Bank
    was non-transferable. It could not provide any security to them. It had
    also been dishonoured. Still SCB asked for and accepted the dishonoured
    SGL of CMF. If it was their case that the SGL of CMF given to them
    was 'useless' or 'worthless' it should have refused to accept it; far from
B   doing so, the SCB not only accepted it but also acted upon it. It received
    interest from the third party. It has not been explained as to why third
    party paid interest to the SCB. Basically, it was for the SCB to explain
    and answer all these questions which it has failed to do. {517-A-D]

C        1.5. SCB's letter dated 8th October, 1991 wrote to CMF requesting
    them to issue a fresh SGL in their favour for the same amount to enable
    the.m to lodge it urgently, clearly indicates that SCB has taken the SGL
    of Canbank with the clear understanding that it wanted to exchange
    th~ BRs of Citi Bank with SGLs of Canbank. Though this letter has
D   no~ been formally proved as the same has been denied by CMF but
    since this was pleaded by the plaintiff-SCB and the document was
    attached with the plaint, SCB cannot disown this document. It is bound
    by its own case set up in the Court. [517-D-F, 517.:.H, 518-A)

      ·- 1.6. Though Citi Bank in its plaint did not specifically mention
E Section 63 of Indian Contract Act, but overall reading of the plaint
    makes it clear that Citi Bank was relying upon the terms of Section
    63 in pleading .that it stood discharged of its obligation to deliver the
    Bonds under the two BRs on the delivery of SGL of CMF. [521-A-B]

F         1. 7. It is Citi Bank's case that SCB of its own asked for and
    voluntarily accepted two SGLs from Citi Bank as satisfaction which
    it deemed fit in exchange for the Citi Bank's obligati~n to deliver the
    Bonds of the face value of Rs. 50 crores under the two BRs. Such a
    plea would fall under Section 63 of the Contract Act. Special Court fell
G   in error in applying Section 41 of Contract Act to the facts of the case.
    Section 41 of Contract Act only provides that tbe promisee cannot have
    double satisfaction of its claim i.e. from the promisor as well as third
    party. It does not give a cause of action to the promisee, but, to the
    promisor, to contend that the promisee who has accepted satisfaction
H   from the third party cannot insist on the satisfaction of its claim from
        CITIBANK N.A. v. STANDARD CHARTERED BANK                  495

the promisor as well. No case under Section 41 of the Contract Act has A
been pleaded by the Citi Bank. It nowhere pleaded that CMF had
delivered the Bonds to SCB and, therefore, SCB cannot enforce its
demand for delivery of Bonds against the Citi Bank. [521-E-H]

     Har Chandi Lal and Others v. Sheoraj Singh and Others, AIR (1916) B
PC 68; Chegamull Suganmull Sowcar v. V. Govindaswami Chetty and
Others, AIR (1928) Mad. 972, referred to.

     1.8. City Bank has specifically pleaded that it stood discharged
from the performance of the original obligation on the delivery of C
SGLs to the SCB, which were asked for and accepted by SCB for
reasons best known to it. SCB instead of the original satisfaction
accepted another satisfaction, deemed fit by it, in terms of Section 63
of Contract Act. [522-E-F]

       1.9. As to why a creditor like SCB had asked for and accepted D
the instrument which was on the face of it unrealizable from the debtor
which is even described by it as 'useless and worthless', it owed a duty
of explanation to the Court as to why did it ask for or accepted the
delivery of such an instrument. SCB has conspicuously and completely
failed to give any explanation either in its plaint or even in evidence. E
It is difficult to import an implied condition or warranty, in the absence
of such an explanation by the SCB. A re-writing of SCB letter of
request of 19th September, 1991 and imposing a qualification in the
acceptance of the Canbank SGL by SCB is not permissible. The clear
intention of SCB was to ask for and take the SGL of Canbank which p
was in possession of the Citi Bank. The said SGL was in favour of Citi
Bank. SCB as a business house was clearly aware of the terms of an
SGL of CMF from Citi Bank when it asked Citi Bank for it and
accepted and retained it. A term can only be implied by way of
sense to give efficacy to the transaction which is intended by the
parties. Implied terms in law are founded on the presumed intention G
of the parties. In this case, the intention of SCB was clear and
unambiguous. [523-G-H, 524-A-D]

     Union of India v. D.M Ravri and Co., [1977] 1 SCR 483, referred
~                                                                       H
    496               SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.             r
A        Hi/las and Co. Ltd. v. Acros Ltd., (1932) All ER 494; Investors
    Compensation Scheme Ltd v. West Bromwich Building'Society, (1998) 1
    All ER 98; Stocznia Gdanska SA v. Latvian Shipping Co. and Others,
    (1998) 1 All ER 883 and Antaios Cia Naviera SA v. Salen Rederierna AB,
    (1984) 3 All ER 229, referred to.                       .     '
B
          Halsbury's Laws of England, 4th Edition, Vol. 9, referred to.

          1.10. Since the SGL of CMF were taken by the SCB voluntarily
    knowing and understanding the consequences flowing from it and the
    fact that plea of express or implied warranty was given up before the
C   Special Court, it cannot be said that there was an implied condition/
    warranty by the. Citi Bank to give the Bonds on the SGL being
    dishonoured. (525-B-C]

        1.11. Where an instrument, a cheque or negotiable instrument, is
D given by the debtor and accepted by the creditor, the question whether
  the instrument was taken as an absolute payment or a conditional
  payment is one of fact depending on the intention of the parties. When
  the creditor takes an instrument by way of absolute satisfaction of the
  debt then the creditor cannot fall back on the original transaction ana
E is restricted to the terms of that instrument only. In the present case
  the SCB asked for and acc~pted an SGL of Canbank payable to the
  Citi Bank in absolute satisfaction of the Citi Bank's original obligation
  to give to SCB Bonds of the face value of Rs. 44.58 crores. SCB asked
  for the SGL of Can Bank which was in possession of the Citi Bank and
F accepted the same voluntarily and unconditionally indicating to the
  fact that SGL was taken as satisfaction deemed fit within the
  meaning of Section 63 of Contract Act. There was no intention of the
  parties that taking of the SGL was conditional, i.e., that if SCB did not
  get the Bonds from CMF, the SCB would hold Citi Bank liable for the
  Bonds. (526-E-G]
G
         Brijbhusan Pande and Ors. v. Ramjanam Kuer, AIR (1932) Patna
    324; Parman Nand and Anr. v. Saliq Ram and Ors., AIR (1926) Lahore
    328; Ramdayal v. Maji Devdiji, AIR (1956) Raj. 12; Lingam Narayan Das
    v. Punia Das, AIR (1959) Orissa 176 and Subramniam Chettiar v.
H   Muthiah Chettiar (died) and Ors., AIR (1984) Madras 215 disapproved.
        CITIBANK N.A. v. STANDARD CHARTERED BANK                   497
      1.12. In the present case, SCB had substituted its original A
satisfaction by asking for and taking the SGL of CMF as deemed fit
for its own reason which have not been disclosed to the Court. Hence
it cannot be said that asking for and acceptance of SGL from the Citi
Bank is not proof of acceptance of the condition that SCB had given
up its claim for the original consider~tion~ (527-G-HJ                B
       Firm Basdeo Ram Sarup v. Firm Dilsukharai Sewak Ram, AIR
(1922) Allahaba<I 461; Shyamnagar Tin Facfqry Private Ltd v. Snow
Whitf! Food Product Co. Ltd., AIR (1965) C~' s41· and Union of India
v. !;/;arayan Lall, AIR (1953) Patna 152, disapproved.               C

       1.13. Once the court comes to the conclusion that Citi Bank has
discharged its obligation under Section 63 of Contract Act then there
is no warrant or justification on the part of the Court to pass any order
or decree or maintain a decree in favour of SCB Suit of Citi Bank (20
of 1994) is a contingent suit and, therefore, the said suit is not even D
liable to be tried much less decreed, if it is found that City Bank has
discharged its obligation and is not liable to SCB. It cannot be said that
since a decree has been passed in the contingent suit, to the extent of
decretal amount paid in the contingent decree, SCB's suit should be
decreed. Firstly it is to be decided in SCB'~ own suit (22 of 1994) E
whether it is entitled to a decree or not. If that suit is dismissed then
the question of passing any decree in Suit No. 20 of 1994 which is a
contingent suit would not arise. Acceptance of the submission of SCB
would mean that though SCB's suit does not deserve to succeed but
still it be maintained by passing a decree in the contingent suit which F
cannot be done. (528-F-H, 529-A]

      1.14. Citi Bank becomes entitled to restitution of the total amount
paid by it to SCB (principal and interest) along with interest @ 12%
p.a. from the date of receipt of payment by SCB provided it is paid
on or before 30th November, 2003 and in default to pay the interest G
@ 15% p.a. from the date of receipt of payment till it is repaid by the
Standard Chartered Bank. The Citi Bank would also be entitled to
receive back the amount of costs it had paid to Standard Chartered
Bank· under the decree of the Special Court but the same would not
carry any interest. (529-C-E]                                             H
    498                 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A         2. The decree passed against CMF in Suit No. 20 of 1994 is set
    aside. CMF becomes entitled to restitution of the total amount paid by
    it to the Citi Bank (principal and interest) along with interest@ 12%·
    p.a. froin the date of payment provided it is paid on o.r before 5th
    December, 2003 and in default to pay interest @ 15% p.a. from the
B   date of payment till it is repaid by the Citi Bank. (530-B-D)

         CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7941 of
    1995.

          From the Judgment and Order dated 10.7.95 of the Bombay High
C Court in Suit No. 22 of 1994.
                                        WITH

          C.A. No. 8340 of 1995.

D        T.R. Andhyarujina, Harish N. Salve, R.>hit Kapadia, K.S. Cooper,
    (NP), Dr. A.M. Singhvi, R.F. Nariman, P.K. Samdani, Ms. Rashmi
                                                                                           '
    Virmani, Subrat Birla, Rajeev K. Virmani, Ms. Sunita Dutt, Pradeep
    Canchati, Shaunak Thacker, Nilesh Parikh, Shailendra Bhardwaj, Rakesh                  I
    K. Sharma, T.K. Cooper, Mahesh Agrawala, E.C. Agrawala, Rishi Agrawala,
E   Manu Krishnan and Ms. B. Vijayalakshmi Menon for the appearing parties.

          The Judgment of the Court was delivered by

          BHAN, J. : This judgment shall dispose of Civil Appeal No.7941
F of 1995 arising in Suit No. 22of1994 (filed by Standard Chartered Bank
    against Citi Bank & Others) decided on 10th July, 1995 and Civil Appeal
    No. 8340 of 1995 arising in Suit No. 20 of! 994 (filed by Citi Bank against
    Standard Chartered Bank & Others), decided on 7th July, 1995. Suits were
    tried by the Special Judge appointed under the Special Courts (Trial of
    Offences Relating to Transactions in Securities) Act, 1992, hereinafter
G   referred to as 'the Act'.

          During 1991 - 92, Reserve Bank of India noticed that large scale
    irregularities and ma! practices were committed in transactions .. in both'.'.'.'·'.
    the Government and other securities, by some .brokers in collusion with ·
H   the employees of various banks and financial institutions. The said
     CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]               499
irregularities and ma! practices led to the diversion of funds from banks A
and financial institutions to the individual accounts of certain brokers. To
deal with this situation and, in particular, to ensure speedy recovery of the
huge amount involved and to punish the guilty and restore confidence in
and miintain the basic integrity and credibility of the banks and financial
institutions, this Act was enacted for establishment of Special Courts to be B
presided over by a sitting Judge of the High Court to be nominated by
the Chief Justice of the High Court within the local limits of whose
jurisdiction the Special Court is situated, with the concurrence of the Chief
Justice of India. The Act provided for appointment of one or more
Custodian for attaching the properties of the offenders with a view to
prevent diversion of such property by the offenders. The Custodian, on C
being satisfied, on information received that any person has been involved
in any offence relating to transactions in securities after the 1st day of
April, 1991 and on and before 6th June, 1992 could notify the name of
such person in the Official Gazette. Special Courts were given· the
jurisdiction to deal with cases of civil as well as criminal liability of the D
notified person.

      The present appeals arise out of a set of transactions between three
parties, namely, the Citi Bank, Standard Chartered Bank (for short 'SCB')
and Canbank Mutual Fund (for short 'CMF') through its trustees.            E
     Suit No. 22 of 1994 filed by SCB has been decreed against the Citi
Bank and that is how the Citi Bank is in Appeal in Civil Appeal No. 7941
of 1995 and Suit No. 20 of 1994 filed by the Citi Bank ha~ been decreed
against the CMF and that is how CMF is in appeal in Civil Appeal No. F
8340 of 1995.

     The brief facts giving rise to these appeals are:

       Citi Bank is a corporation incorporated under the laws of United
States of America, carrying on business of banking, inter alia, at Sakhar G
Bhavan, Nariman Point, Bombay. SCB is a bank incorporated by royal
charter under the laws of England and Wales. CMF is represented through
its trustees. CMF was made a party respondent along with its trustees in
Suit No. 22 of 1994 filed by SCB initially; they were given up on the
application of SCB on 10th July, 1995. CMF has been made a party in· H
    500                 SUPREME COURT REPORT<; [2003] SUPP. 4 S.C.R.
A Civil appeal No. 7941 of 1995 (in Suit No. 22 of 1994), though as stated
    above it had been deleted from the array of parties in the suit at the instance
    of the plaintiff SCB.

          On 27th May, 1991, CMF purchased certain securities (11.5% GOI
B 2009 Bonds) from the Bank of Karad. Citi Bank purchased from CMF
    11.5% GOI 2009 bonds of the face value of Rs. 44,93,20,414.17 p. for
    Rs. 44.8505 crores on the same day. The total consideration was paid by
    the Citi Bank to CMF. CMF handed over to the Citi Bank their Subsidiary
    General Ledger (for short 'SGL') Transfer Form, duly executed on their
C   behalf to enable the Citi Bank to get the said securities duly transferred
    to their name in the SGL maintained by the CMF with the Reserve Bank
    of India. CMF maintains with the Public Debt Office (for short 'PDO') of
    the Reserve Bank. oi India an account into which its purchase of the
    Government of India Securities were credited and whenever it desires to
    sell any Government securities, instead of physically handling the papers,
D   it merely issues a SGL transfer form which can roughly be equated to a
    non-negotiable account payee cheque in favour of the transferee. A SGL            '
    has to be issued in favour of a named person and no blank SGL transfer
                                                                                          \
    form can be issued under the Regulations governing the use of SGL transfer        I
                                                                                      I
    form framed by PDO of the Reserve Bank of India.
                                                                                      I
E                                                                                     ~


         Citi Bank on 27th May, 1991 presented the SGL transfer form to the           \
    Reserve Bank of India but the same was dishonoured for want of sufficient
    balance. An endorsement to that effect was made on the SGL form. It was
    presented once·again on 6th June, 1991 when it was again dishonoured for
F   want of balance ..

         On 18th & 19th September, 1991, Citi Bank agreed to sell to SC.B
     11.5% GOI 2009 Bonds of the face value of Rs. 42 crores and Rs. 8 crores
    respectively against receipt of the 'purchase price paid by the SCB to the
    Citi Bank. Since the bonds were not ready, the Citi Bank issued two
G   Bankers Receipts (for short 'BRs') Nos. 0912621480 and 0912611410 for
    the said Bonds with the understanding that the Bonds will be delivered
    when ready in exchange for the duly discharged BRs and in the mean time
    the BRs will be held on account of the SCB. A seller issues a BR
    acknowledging its liability to deliver the purchased securities, when
H   purchaser has made the payments. The exact term mentioned in the BR
                                                                                              "
     CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]              501

is as follows:                                                              A
         "The Securities/Debentures/Bonds of face value ofRs.42,00,000.00
         will be delivered when ready in exchange for this receipt duly
         discharged and in the meantime the same will be held on account
         of Standard Chartered Bombay."
                                                                            B
      By a letter dated 19th September, 1991, the SCB requested the Citi
Bank to deliver to the SCB, SGL fonns issued by CMF in exchange for
the two BRs issued by the Citi Bank. Accordingly, the Citi Bank delivered
to the SCB, the (I) SGL fonn which had been issued by CMF in its favour
of the face value of Rs. 44.8505 crores and (2) their own SGL fonn of the C
face value of Rs.5,41,95,000 in exchange of the two BRs making it
equivale11t to Rs. 50 crores i.e. the amount advanced by SCB for purchase
of the GOI Bonds. SCB delivered to the Citi Bank, the two BRs duly
discharged which had been earlier issued by the Citi Bank in favour of
SCB. The letter dated 19th September, 1991 written by SCB to the Citi D
Bank is to the following ~ffect:

         "We hereby enclose two BRs (I) 42 crores (2) 8 crores issued by
         you of 11.5% GOI 2009 on 18.9.91 & 19.9.91 respectively. We
         now request you to give us SGLs of Canbank Mutual Fund in
         exchange of the same."                                          E
                                                      [emphasis added]

      Allegedly on 8th of October, 1991 SCB addressed a letter to the CMF
requesting CMF to issue a fresh SGL transfer fonn in its name in lieu of
SGL transfer fonn received by the SCB from the Citi Bank. CMF in their F
written statement in Suit No. 22 of 1994 denied having received the said
letter. The letter was attached by the SCB with its plaint in Suit No. 22
of 1994 and this fact was mentioned in the plaint as well. Another important
fact which needs to be noticed is that on 25th November, 1991 SCB
received the interest due as on 19th November, 1991 of the said bonds vide
cheque No.944073 dated 25th November, 1991 in the sum of G
Rs.2,56,33,787.50 p. drawn on Andhra Bank. The interest was neither
received from the Citi Bank nor from the CMF. The same was received
from a third party whose name was not disclosed in the plaint by the SCB.
Citi Bank's SGL fonn of the value of Rs. 5,00,95,000 was duly encashed
by the SCB and there is no dispute about it.                                 H
    502                 SUPREME COURT REPq,i TS [2003] SUPP. 4 S.C.R.
A         On 17th June, 1992 SCB addressed t~ 1eir :advocate' s letter to the Citi
    Bank calling upon the Citi Bank to forthwith handover to SCB the
    consideration of Rs. 44.8505 crores paid to the Citi Bank with furthe1
    interest in respect of the said bonds as they had not receiveQ. delivery of
    the said bonds from CMF in spite of the lapse of over nine months from
B   the date of giving of the SGL of CMF. Advocate for the Citi Bank sent
    a reply to the advocate's notice of SCB refuting the claim of the SCB.
    According to the Citi Bank, the liability of the Citi Bank to deliver the
    securities ( 11.5% of GOI 2009 Bonds) under the contract of sale between
    the Citi Bank and SCB stood discharged and the Citi Bank ceased to be
    liable to carry out any further obligation in respect of the said transactions.
c
          On 8th October, 1992 SCB filed a suit against the Citi Bank in the
    Federal Court at New York claiming consideration paid by the SCB to the
    Citi Bank. SCB also filed a suit bearing No. 3837 of 1992 in the High
    Court of Judicature at Bombay on its original side against the Citi Bank
D   for recovery of the aforesaid amount due towards the Bonds. Citi Bank
    made an application to the Federal Court at New York seeking dismissal
    of the suit on the ground of forum non-convenience. By an order dated
    22nd April, 1994 the Federal Court dismissed the said suit, inter alia,
    granting liberty to the SCB to revive the suit in the event the suit filed by
    the SCB in the Bombay High Court was not disposed of within a reasonable ·
E   period oftime. Before the service of summons in Suit No. 3837 of 1992,
    Citi Bank filed a suit in the nature of third party pr-0.ceedings being Suit
    No. 20 of 1994 before the Special Court at Bombay constituted under the
    Act, inter alia, against the SCB, CMF and its trustees in which the Citi
    Bank pleaded that in the event of a decree being passed against the Citi
F   Bank and in favour of the SCB in Suit No. 3837 of 1992 filed by the SCB
    against the Citi Bank, Citi Bank was entitled to a decree agains~ CMF for
    delivery of the original securities, or, in the alternative for the refund of
    the consideration paid and for other reliefs.

          Plaint in Suit No. 3837 of 1992 was returned by the High Court for
G being presented to the Special Court because one of the parties notified
    under the Act was involved. The suit was transferred to the Special Court
    and renumbered as Suit No. 22 of 1994. Citi Bank after service of the
    summons in Suit No. 22 of 1994 filed its written statement.

H         Primarily the case of SCB against the Citi Bank was for return of
     CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]              503

money on the ground that for consideration which was paid on 18th and A
19th September, 1991, it had not received the transacted securities. That
Citi Bank expressly/impliedly warranted that CMF would transfer the
Bonds and on its failure to do so, the Citi Bank was obliged to deliver the
Bonds. That the action ofCiti Bank was fraudulent and amounted to deceit.
That 'useless' and 'worthless' SGLs were given by Citi Bank which even B
could not be transferred in its name. In the written statement filed by SCB
in Citi Bank's suit an additional plea (which is absent in its own suit filed
two years earlier) was taken to.the effect that the SGL sought by SCB was
an SGL of CMF in favour of SCB and not the one drawn in favour of Citi
Bank. Citi Bank in its defence in suit no. 22 of 1994 pleaded and contended C
that as SCB had on its own volition asked for and took the SGL of CMF
which was in its possession and returned the two BRs duly discharged and
therefore the Citi Bank was no longer under any obligation to either pay
any sum ·or to deliver any securities much less to refund the money. That
SCB returned two BRs duly discharged in exchange of the SGL of CMF
at its express desire. The obligation to deliver bonds under BRs was D
substituted by delivery of the SGL of CMF. Citi Bank similarly claimed
complete discharge in its own suit. Citi Bank in its suit claimed for a decree
against CMF in case a decree was passed against the Citi Bank in the Suit
filed by SCB. The defence taken by the CMF in the two suits was more
or less common. In substance it was that all these transactions were part E
of Hiten Dalal's transactions with SCB and that CMF as well as Citi Bank
were merely used as a conduit to pay monies from the Bank ofKarad which
was basically a Hiten Dalal's account to SCB and from SCB to the Bank
ofKarad and that all these transactions were in pursuance of an arrangement
which Hiten Dalal had with SCB under which SCB used to "Park" funds, F
with Hiten Dalal for guaranteed return of 15 percent, although this parking
of funds was shown simulated transaction in securities.

     On these broad pleadings the following separate issues were framed
in Suit No. 20 of 1994 between Citi Bank and SCB (Set A) and between
Citi Bank and CMF(Set B):                                               G

                   ISSUES IN SUIT NO. 20 OF 1994

A.   ISSUES BETWEEN THE PLAINTIFF (CITIBANK N.A.) AND
     DEFENDANT NO. 2 (STANDARD CHARTERED BANK).       H
     504                SUPREME COURT REPORTS i2003] SUPP. 4 S.C.R.
A         1. Whether the liability of the Plaintiffs towards Defendant No. 2
     stood discharged and the Plaintiffs ceased to be liable as alleged in
     paragraphs 8 and 9 of the plaint?

           2. Whether the liability of the Plaintiffs towards Defendant 2 could
B have been discharged only if Defendant No. 2 had obtained delivery of the
    · securities as alleged in paragraph 8 of the Written statement?

          3. Whether the remedy of Defendant No. 2 is only against Defendant
     Nos. 3 to. 3G as alleged in paragraph 9 of the plaint?

C B.       ISSUES BETWEEN THE PLAINTIFF (CITIBANK N.A.) AND
           DEFENDANTS 3 TO 3G (CANARA BANK & OTHERS)

          1. Whether the alleged claim of the Plaintiff is contingent upon the.
     Plaintiff being held liable for the alleged claim of Defendant No. 2 in Suit
D    No. 22 of 1994 as alleged in paras 12 and 14 of the Written Statement of
     Defendant Nos. 3A to 3G?

           2. Whether the two transactions dated 27th May 1991 are
     interconnected with the Plaintiffs alleged transaction dated 18th September
     1991 with Defehdant Nos. 2?
E
           3. Whether the alleged transaction dated 18th September 1991 with
     the Plaintiffs are part of and/or connected with the alleged 15% informal
     arrangement that Defenoant No. 2 had with Defendant No. 1 and whether
     the alleged transactions are illegal and opposed to public policy as alleged
F    para 8G of the Written Statement of Defendant Nos. 3A to 3G? ·

           4. Whether the Plaintiff and the Defendant Nos. 3A to 3G are not
     liable to Defendant No. 2 for the reasons alleged in para SD of the Written
     Statement of Defendant Nos. 3A to 3G?

G         5. Whether the Defendants are not liable for the claim in the suit in
     view of the alleged facts and circumstances mentioned in paragraph Nos.
     SF and I 0 of the Written Statement of Defendant Nos. 3A to 3G?

           6_. ~ether the two security transactions dated 27th May, 1991 were
H a ruse by which Defendant No. l transferred funds to himself using
     CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]               505
Defendant No. 3 as a conduit?                                                 A
     7. Whether claim against Defendant Nos. 3A to 3G personally is
barred by limita~ion?

     8. Whether Defendant Nos. 3A to 3G are personally liable for the B
claim in the Suit?

      9. Whether the Plaintiffs claim against Defendant Nos. 3 to 3G is not
maintainable in view of the facts and circumstances set out in paragraphs
5(a) to 5(h) of the Written Statement of Defendant Nos. 3A to 3G?
                                                                              c
     In Suit No. 22of1994 issues were framed between the plaintiffSCB
and Citi Bank, defendant No.2. No issues were framed between SCB and
the CMF. The same were as follows:

                   ISSUES IN SUIT NO. 22 OF 1994                              D
     1. Whether the Plaintiffs have no cause of action against Defendant
No. 1 as alleged in Paragraph 1 of the Plaint.

     2 .. Whether for the reasons mentioned in paragraph 3 of their written
statement Defendant No. 1 stands discharged of all their obligations.       E
     3. Whether Defendant No. 1 gave any express or implied warranty
of the nature alleged in para 13 of the plaint.

     4. Whether there is any failure of consideration as alleged in para F
14(3) of the plaint.

     5. Whether Defendant No. 1 is guilty of any fraud or deceit as alleged
in para l 4(g) of the Plaint.

     6. Whether any amount is payable by the 1st Defendant to the G
Plaintiffs as alleged in para 15 of the plaint. ·

     7. To what reliefs are the Plaintiff entitled to?

     8. And generally.                                                        H
    506                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A        Copies of documents in Suit No. 20 were tendered in the Court. No
   oral evidence was led by any of the parties in Suit No. 20. Suit No. 20
   of 1994 was listed for hearing. Citi Bank and CMF submitted before the
   Special Court that issues between Citi Bank and SCB should not be
   decided in Suit No. 20of1994 (Citi Bank suit) but in Suit No. 22of1994
B. as issues between Citi Bank and CMF were dependent on the result ·of Suit
   No. 22 of 1994 filed by SCB against Citi Bank. It was contended thafthe
   suit filed by the Citi Bank was a contingent suit depending on the result
   of the suit filed by SCB against the Citi Bank. This objection was overruled
   by the Special Court.

c         All the three issues (Set A) in Suit No. 20 of 1994 between the Citi
    Bank and the SCB were decided in favour of the SCB and against the Citi
    Bank on 5th/6th July, 1995. It was held that the liability of the Citi Bank
    was not discharged towards the SCB and that the remedy of SCB was not
    against the CMF or its trustees. It was further held that the liability of
D   the Citi Bank towards SCB could be discharged only if the SCB had
    obtained delivery of the securities as alleged by the SCB in paragraph 8
    of its written statement.

          On 7th of July, 1995 issues betwee~ Citi Bank and CMF (Set B) in
E Suit No. 20of1994 were answered in favour of the Citi Bank and the suit
  decreed against CMF. Issue No. I was decided in the negative. Issues No.2
  to 6 were also answered in the negative because of the absence of any           ..
  evidence. Issues Nos. 7 & 8 were not pressed. Issue No. 9 was decided
  in the negative i.e. against the CMF and in favour of the Citi Bank. Citi
  Bank's claim against CMF was held to be justified. CMF was ordered to
F deliver Bonds equivalent to the amount mentioned in ~e SGL to the Citi
  Bank along with interest at 11.5% accrued thereon. Under the Bonds the
  interest was payable after every six months. Since it was not paid, in -Order
  to compensate the Citi Bank for denial of the use of the interest amount
  accrued, coupon interest of 20% on the interest accrued was ordered to be
G paid. The trustees of CMF i.e. defendant Nos. 3 to JG were discharged
  from their personal liability. The decree was made contingent depending
  upon the result in Suit No. 22 of 1994 filed by SCB against Citi Bank.

         Issues in Suit No. 22 of 1994 were answered in the following terms.
H   Issues Nos. I & 2 were answered in the negative i.e. in favour of the SCB
     CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]            507
and against the Citi Bank. It was held that SCB had a cause of action A
against the Citi Bank and the Citi Bank was not discharged of its
obligations towards the StB. Issues Nos. 3 & 5 were not pressed.
Issue No. 4 was answered in the negative. Issue Nos. 6, 7 and 8 were
answered as per order. SCB's suit was decreed for Rs. 54,07,24,676.93
p. with interest at 20% per annum on Rs.44,79,44,864 from the date B
of the suit till payment for the reasons set out in the judgment dated 7th
July, 1995 in the issues between Citi Bank and the SCB in Suit No. 20
of 1994.

     On 10th of July, 1995 SCB filed an application for dropping
defendants Nos. 2 to 9 (CMF and its trustees) in Suit No.22of1994. This C
was opposed by the CMF. Court pennitted the CMF and its trustees to
be dropped from the array of the parties. Another fact which needs to be
noticed is that CMF filed Civil Appeal Nos. 8248-89 of 1995 against the
orders passed by the Special Court dropping it as a party in Suit No. 22
of 1994 and the decree passed therein. Both of these appeals were D
dismissed by this Court on 18th September, 1995.

      Learned Special Judge did not accept the Citi Bank's plea that there
was a satisfaction accepted and recorded to the original contract between
Citi Bank and the SCB in terms of Section 63 of the Indian Contract Act. E
Submission that the original contract to deliver the 11.5% GOI 2009 Bonds
was substituted by the SCB vide their request letter dated 19th September,
1991 and instead to give "SGLs of Canbank Mutual Fund in exchange of
the same" was not accepted on the ground that novation of the contract
could not be there as CMF was not a party and consented to the transfer
of their SGL form in favour of SCB which was in the hands of Citi Bank. F
Submission made by the counsel appearing for the SCB to the effect that
Section 41 of the Contrac(.Act would be more appropriately applicable
was accepted as the third party (CMF) failed to perfonn or the Citi Bank
failed to get the promise made by it to be perf9nned by the CMF. That
the SCB by returning the two BRs did not dispense with or remit G
the perfonnance of the promise made by the Citi Bank. Learned
Special Judge gave detailed reasons for turning down the request of
the CMF for issue of chamber summons as the learned Special Court was
of the opinion that there was an effort on the part of the CMF to get the
suit adjourned.                                                            H
    508                SUPREME COURT REPbRTS [2003) SUPP. 4 S.C.R.
A        Before we go to the submissions made before us by the learned senior
  counsel for the parties, reference may be made to the entire documentary
  evidence present on the record which was referred to and read out
  extensively during the course of the hearing. Exhibit 'B' is the form of
  transfer for operation on SGL account dated 27th May, 1991 by Canara
B Bank as trustee of Canbank Mutual Fund and to assign and transfer their
  interest and share in SGL by way of 11.5% GOI 2009 Bonds for the sum
  of Rs.44~58,05,000 in favour of Citi Bank. On presentation of the SGLs
  by the Citi Bank to the Reserve Bank of India the same were dishonoured
  and returned with an endorsement "insufficient balance" on the face of the
  form. The two Banker's receipts dated 18th & 19th September, 1991
C in the sum of Rs. 42 crores and Rs. 8 crores being the cost of securities/
  debentures/bonds of 11.5% GOI 2009 Bonds issued by the Citi Bank and
  handed over to the SCB is jointly marked as Exhibit 'A'. On the reverse
  of these two receipts there is a stamp of SCB and signatures of an officer
  of the bank. Then there is a letter dated 19th September, 1991 written by
D the SCB to the Citi Bank requesting the Citi Bank to give the SCB SGL's
  of Can bank Mutual Fund in exchange of the two BRs. On receipt of this
  letter, Citi Bank handed over the original SGL forms of 11.5% GOI 2009
  Boods received by it from the CMF dated 27th May, 1991 face value of
  which was Rs. 44,58,05,000 and its own SGL in the sum ofRs.5,41,95,000
E making a total of Rs. 50 crores in return for the two BRs of equivalent
  amount bearing Nos. 0912611410 & 0912621480 in the sum of Rs. 42
  crores and Rs. 8 crores. Then there i~ Advocate' s letter of SCB dated 17th
  June, 1992 addressed to the Manager, Citi Bank asking for securities of
  the face value of Rs. 44,58,05,000 instead of SGL of Canbank Mutual
F Fund of the same amount in the form of 11.5% GOI 2009 Bonds or in the
  alternative to make payment of the said amount in respect of the valuable
  consideration already received by the Citi Bank. Exhibit 'D' is the letter
  addressed by the.Advocates of the Citi Bank refuting the statement of facts
  made by in the advocate's notice of the SCB dated 17.6.1992. It was stated
  that SCB knew that SGLs are not transferable but in spite of that SCB
G desired to have SGLs issued by CMF in favour of the Citi Bank.
  Accordingly, SGLs were delivered in exchange of the two BRs. That SCB
  for reasons best known to it and of its own volition chose to take from Citi
  Bank the SGL of CMF which was in its possession in exchange for the
  two BRs. The obligation of Citi Bank to physically deliver the securities
H ceased/ or was discharged. The question of handing over the securities or
     cm BANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]                 509

valuable consideration for the securities, under the circumstances therefore, A
did not arise at all.

      Admitted position which emerges from the facts narrated above is that
on I 8th September, 1991 and 19th September, 1991 Citi Bank had agreed
to sell to SCB 11.5% GOI 2009 B0nds of the face value of Rs. 42 crores B
and Rs. 8 crores. Citi Bank had issued two Banker's receipts promising
to deliver the 11.5% GOI 2009 Bonds when ready with the stipulation
that on delivery of the Bonds SCB would return the two BRs duly
discharged. A letter dated 19th September, 1991 was written by the SCB
requesting the Citi Bank to give SGL ofCMF in exchange of the two BRs
(1) Rs. 42 crores and (2) Rs. 8 crores issued by the Citi Bank stipulating C
to give 11.5% GOI 2009 Bonds of that value. The two BRs issued by the
Citi Bank were returned to it by the SCB and SCB accepted the SGL of
CMF for the sum of Rs. 44,58,05,000 and another SGL of the Citi Bank
for the sum of Rs. 5,41,95,000. The latter was duly encashed by the SCB
 and there is no dispute regarding the same.                                D
       On the basis of these facts Shri Andhyarujina, learned senior counsel
appearing for Citi Bank in Civil Appeal No. 7941 of 1995 contended that
SCB on its own asked for and voluntarily accepted the two SGLs from Citi
Bank as satisfaction which it deemed fit in exchange for Citi Bank's E
obligation to deliver the 11.5% GOI 2009 Bonds of the face value of
Rs. 50 crores under the two BRs. That SCB voluntarily and unconditionally
accepted the SGL of CMF knowing full well that under such SGL it could
not obtain Bonds from PDO. That SCB accepted the SGL ofCMF knowing
full well that it had been dishonoured by the Reserve Bank of India and
it is not transferable. That these admitted and established facts clearly bring F
the case of Citi Bank under Section 63 of the Indian Contract Act. That
SCB asked for and accepted the SGL of CMF as satisfaction which it
deemed fit for the obligation of the Citi Bank to deliver GOI bonds of the
face value of Rs. 44,58,05,000 and therefore the Citi Bank stood discharged
from its obligation to deliver the Bonds under Section 63 of the Indian G
Contract Act. That the contention of the SCB that SGLs were 'useless or
worthless' was not tenable as it accepted the dishonoured SGLs of CMF
without any protest and also received interest from an undisclosed third
party thus treating itself a beneficial owner of SGL which clearly points
that SGL was not 'useless or worthless' as is being sought to be made out H
    510                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A now. The letter of 8th October, 1991 written to CMF asking to give SGL
    in favour of SCB also shows that SCB knew that the securities could not
    be delivered on the strength of SGL form taken by it from Citi Bank. Plea
    put forth that Citi Bank had given 'useless or worthless' SGL by playing
    a fraud is an after thought after the unscrambling of the infamous securities
B   scam. Another fact emphasised was that SCB kept quiet for almost 9
    months for which no satisfactory explanation has been given. That an
    adverse inference be drawn against SCB as it had failed to disclose the
    material facts in the suit and also failed to explain the delay of 9 months
    in approaching the Citi Bank. It is his contention that the Special Judge
C   fell in error in accepting the contention of SCB that the present case would
    be governed by Section 41 of the Indian Contract Act. According to him
    Section 63 of Indian Contact Act would be more appropriately applicable.
    That the Citi Bank as per decree was required to pay the value of the
    securities along with interest whereas it has been given in return the bonds
    of the face value of Rs. 44.8505 crores the value of which at that time in
D   the market was at a discount and in this process the Citi Bank incurred a
    loss of Rs. 12,94,66,022.41 p.

          As against this Shri R.F.Nariman, the learned Senior advocate
    appearing for the SCB in Civil Appeal No. 7941 of 1995 contended that
E   an implied warranty must be. read in the. transaction asking for and
    accepting the SGL ofCMF. Principles of contractual interpretation mandate
    that construction placed on the terms be re~sonable and consistent with the
    nattlral and probable course ~f human conduct. That the courts will not
    adopt an interpretation out of context in commercial dealings between the
F   parties and in a manner unknown to tra~e and commerce. That admittedly
    SCB had paid Rs. 50 crores to Citi"Bank for 11.5% GOI 2009 Bonds. SCB
    having established that it did not receive securities worth-Rs. 50 crores
    despite having paid the consideration, the onus to prove novatio and/or
    discharg·e by substitution and/or satisfaction _was on the Citi Bank which
    it had failed to discharge.
G
          That in the absence of oral evidence, SCB's letter dated 19th
    September, 1991 to Citi 6ank falls for consideratiPJ?-· This letter does not
    state that SCB required· ~the dishonoured SGL of CMF in favour of Citi.
    Bank'. Admittedly, such an SG~ could not have been used· by SCB for
H   delivery of securities. There is no reasort why SCB did or could have asked
     cm BANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]              511
for the said SGL. What SCB wanted was the SGL of CMF in favour of A
SCB. That SCB's letter dated 19th September, 1991 should be interpreted
in the above context and the following points emerge from a plain reading
of the letter and establish that SCB required a SGL of CMF in favour of
SCB and not the one in favour of Citi Bank. That the BRs were enclosed
with the letter and therefore SCB gave them first and only thereafter B
received the SGLs. The BRs were for Rs.50 crores and not for Rs.44.58
crores; latter was the value of the SGL ofCMF. By return of the BRs of
Rs.50 crores, SCB cannot be understood to have asked for a dishonoured
third party's SGL of Rs.44.58 crores. That the word "SGLs" in plural
shows that SCB did not want the single dishonoured SGL of CMF. That
the words "issued by you" in the letter referring to Citi Bank's BR are not C
followed by the words "in our favour". Similarly, SCB's request for SGLs
of CMF is not followed by the words "in our favour". The words "in our
favour" are obviously intended in both situations and ought to be read into
the letter. That the letter does not show SCB had knowledge of CMF's
SGL in favour of Citi Bank. That the words "in exchange" only shows D
that SCB was substituting one "step in aid" for another "step in aid" of
delivery of securities. That the Citi Bank's obligation to deliver bonds is
nowhere discharged. Only the BRs are substituted .with SGLs. Both are
merely promises to deliver bonds. That the words "SGLs of CMF" only
imply that SCB was willing to look to CMF for performance. This could E
have been achieved only if SGLs of CMF were issued in favour of SCB
and bonds consequently transferred to SCB. Since the offer of SCB to get
performance by CMF was not satisfied, the letter does not vitiate Citi
Bank's contractual obligation to deliver securities to SCB. That Citi Bank
clearly understood the letter as above i.e. its obligation to deliver bonds F
continued and did not cease. That for this reason Citi Bank gave its own
SGL of Rs.5,45 crores which gave securities to SCB.

      It was next contended that acceptance of the SGLs transfer form was
only a conditional dis~harge of performance and not as an absolute
discharge. Relying upon a few reported decisions it was contended that G
where a che9ue, pronote or banker's receipt is received or accepte~ "in
satisfaction", there is a presumption that such acceptance was only as a
'conditional discharge' of performance and not as an 'absolute discharge'.
The conditional discharge having failed, the SCB could fall back on the
original consideration. That Section 63 of the Indian Contract Act was not H
    512                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A applicable.     That mere signatures or endorsement on the BRs, without
    receipt of bonds which the BRs promised, can never discharge the ·titi
    Bank of its main obligation of delivering the bonds: That receipt of the
    irtterest by SCB from a third party was of no consequence. That this point
    was not raised by the Citi Bank or the CMF in its submissions made before
B   the Special Court. This point has also not been taken as a ground in ·the
    Citi Bank's appeal. That merely because SCB received some money/
    interest from the third party does not lead to an inference that the SCB_ had
    discharged Citi Bank of its obligation to deliver the securities. He further
    argued that in order to do complete justice between the parties the SCB
C   could be asked to make good the loss if any suffered by the Citi Bank. The
    CMF should not be unduly benefited.

         Dr. A.M.Singhvi, learned senior advocate, appearing for the SCB in
   Civil Appeal No. 8340 of 1995 additionally contended that in case both
   the decrees in Suit No. 22 and 20of1994 were reversed, CMF would be
D unduly enriched and SCB would lose Rs.45 crores apart from the interest
 -accrued thereon. Such a result would be contrary to all notions of justice.
   Under the circumstances irrespective of any view this Court may form, in
   order to do complete justice between the parties, in exercise of its power
   under Article I 42 of the Constitution of India the Court should maintain
E tije decree in favour of SCB and if need be the SCB can be made to
   reimburse the Citi Bank to the extent of Rs.l2,94,66,022.4lp. That this
   Court in exercise of its power under Article 142, keeping in view the
   practicality and reality of the situation, should see to it that nobody is
   allowed to have its own pound of flesh unjustly against the other.

F         Learned counsel for the parties have been heard at length.

         As per stipulation in the BRs the Citi Bank had agreed to deliver
   I I .5% Government of India 2009 Bonds when ready "in exchange for this
  receipt duly discharged and in the meantime the same will be held on
G account of Standard Chartered Bombay." On the same day, i.e., on 19th
  September, 1991 SCB wrote a Jetter returning the two BRs with a request
  "to give us SGLs of Can bank Mutual Fund in exchange of the same".
  Stipulation in t!:J.e BRs was to deliver 11.5% GOI 2009 Bonds in exchange
  of BRs duly discharged; SCB in exchange of the BRs asked for and
H received SGLs ofCMF. Case of Citi Bank is that BRs are duly discharged
     CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.)               513
with the result that Citi Bank was relieved of its obligation to deliver the A
Bonds under the BRs. That the SCB substituted the satisfaction referred
to in the BRs (11.5% GOI 2009 Bonds) by asking for and taking the SGL
of CMF. As against this the case of SCB is that BRs were never discharged.
They were returned to the Citi Bank in exchange of SGL of CMF. The
Citi Bank was not discharged of its obligation under the BRs to deliver the B
11.5% GOI 2009 Bonds. The first question which needs to be determined
is whether the BRs were duly discharged by the SCB. The fact that the
two BRs were duly discharged was accepted by the SCB before the Special
Judge. The judgment in suit 20 of 1994 records this fact as follows:

         "46. Mr. Tulzapurkar submitted that it is an admitted position that C
         in pursuance of this letter the two Banker Receipts issued by the
         plaintiffs were returned to the plaintiffs duly discharged by
         defendant No.2 and defendant No.2 accepted the SGL of Can bank
         Mutual Fund and another SGL of the plaintiffs. The fact is also
         not being denied.                                                   D

         50. Mr. Cooper reiterates that the facts as set out are admitted."

         [Note: Mr. Tulzapurkar was the counsel for the Citi Bank whereas
         Mr. Cooper was the counsel for the SCB in the Special Court.] E

      This finding has not been challenged. Further the return of two BRs
with the stamp of the SCB on its reverse duly signed by the officer of the
SCB also amounts to discharge of the BRs. This was the mode of discharge
of BRs. The discharged BRs being in possession of the Citi Bank would
raise a presumption in law under Section 114 illustration (i) of the F
Evidence Act, 1872 that the BRs stood duly discharged. Section 114
provides that the Court may presume the existence of any fact which it
thinks likely to have happened regard being had to the common course of
natural events human conduct and public and private business, in their
relation to the facts of the particular case. Illustration (i) provides that G
Court may presume 'that when a document creating an obligation is in the
hands of the obligor, the obligation has been discharged'. The two BRs
were in the custody of the Citi Bank. The possession of two BRs with the
Citi Bank would raise a rebuttable presumption of discharge of the two
BRs. Onus to rebut the presumption was upon the SCB. SCB has failed H
    514                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A   to rebut the presumption by leading any evidence that the obligation under
    the two BRs did not stand discharged. Finding recorded by the Special
    Court that there was nothing on the record to show that there was an
    absolute discharge granted by the Citi Bank to the SCB cannot be accepted
    because the two BRs were returned with the stamp of SCB duly signed by
B   an officer of the SCB authenticating that it had been discharged.

        What is the effect of production of documents by promissor from its
  custody was considered in Chaudhri Mohammad Mehdi Hasan Khan v.
  Sri Mandir Das, [L.R. 39 Indian Appeals 184]. In the said case, a suit was
  filed on the basis of mortgage deed for the recovery of Rs. 62,000 by way
C of sale of the mortgage premises. At the time of institution of the suit the
  plaintiff produced only a copy of the document, alleging that the original
  had been lost. The defendant in his written statement admitted the
  execution of the document but alleged that the debt has been discharged.
  In support of this allegation he produced the original document containing
D the endorsement of payment by the plaintiff. The Privy Council overruling
  the decision of the Judicial Commissioner held that in view of the
  presumption under Section 114 of the Evidence Act the onus was upon the
  plaintiff to show that the debt was still subsisting which the plaintiff had
  failed to discharge by producing any evidence. It was held that production
E of the document by the defendant from his custqdy raised a rebuttal
  presumption of the discharge of the debt.

          In our view, the law has been correctly stated in the aforesaid case
    and applying the same ratio, we hold that production of two BRs by the
F   Citi Bank raised a rebuttable presumption that Citi Bank had discharged
    its obligation under the two BRs which the SCB failed to dislodge by
    pleading/leading any evidence to show the circumstances under which the
    two BRs were returned. In the absence of any explanation by the SCB
    either in its plaint in Suit No. 22 of 1994 or the written statement filed by
    it in Suit No. 20 of 1994 whatsoever as to why it had asked for and took
G   dishonoured SGL of CMF in exchange of two BRs raises a presumption
    under Section 114, illustration (i) that Citi Bank was discharged of its
    obligation under the BRs i.e. to deliver the Bonds.
                                                                                    t
          SCB, in its plaint in Suit No. 22 of 1994 or in the written statement
H filed by it in Suit No. 20 of 1994, failed to gave any explanation whatsoever
     CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]              515
as to why it had asked for and taken dishonoured SGL of CMF which A
could not have given it any security. It did not plead or give evidence as
to why it accepted "useless or worthless SGLs", as stated by it in its plaint,
when it knew that it would not be even transferable. SCB has not disclosed
any particular or even the name of the person from whom or the
circumstances under which it obtained interest for half year in the sum of B
Rs. 2,56,33,787.50 on 25th November, 1991 on the bonds of the value of
Rs. 44,58,05,000. It is not SCB's case that the interest was either received
from the Citi Bank or the CMF or from Government of India or from a
person actually holding the Government of India bonds who may have paid
the interest to SCB after receiving it from the Government of India. Shri
Andhyarujina is right in submitting that on the facts and in the circumstances
an adverse inference should be drawn against the SCB to the effect that
 if these facts were disclosed it would have been proved that SCB had
taken the SGL of CMF for its own benefit or at the behest of the third
person from whom it had received the interest. That third person treated
the SCB as the beneficial owner of Bonds and therefore entitled to interest D .
 on it.

      Illustration (g) of Section 114 of the Indian Evidence Act provides
that Court may presume 'that evidence which could be and is not produced
would, if produced, be unfavourable to the person who holds it'. Privy E
Council in T.S. Murugesan Pillai. v. MD. Gnana Sambandha Pandara
Sannadhi & Ors., AIR ( 1917) PC 6, held:

               "A practice has grown up in Indian procedure of those in
         possession of importance documents or information lying by,
         trusting to the abstract doctrine of the onus of proof, and failing F
         accordingly to furnish to the courts the best material for its
         decision. With regard to third parties, this may be right enough;
         they have no responsibility for the conduct of, the suit; but with
         regard to the parties to the suit it is, in their Lordship's opinion,
         an inversion of sound practice for those desiring to rely upon a G ,
         certain state of facts to withhold from the court the written
         evidence in their possession which would throw light upon the
         proposition ...."

     This passage was cited with approval of this Court in Bi/tu Ram v.
Jainandan Prasad, Civil Appeal No. 941of1965, decided on 15.4.1968, H
    516                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A and again in Gopal Krishnaji Ketkar v. Mohammed Haji Latif& Ors., AIR
    (1968) SC 1413 in which it was held:

                   " ...Even if the buJden of proof does not lie on a party the
             Court may draw an adverse inference.if he withholds important
             documents in his possession which can throw light on the facts
B
             at issue. It is not, in our opinion, a sound practice for those
             desiring to rely upon a certain state of facts to withhold from the
             Court the best evidence which is in their possession which could
             throw light upon the issues in controversy and to rely upon the
             abstract doctrine of onus of proof."
c
          An adverse inference has to be drawn against the SCB. Had the facts
    referred to in the previous paragraph been disclosed, it would have proved
    that SCB had taken the SGL of CMF for its own benefits or at the behest
    of the third person from whom it had received the interest. Failure on the
D   part of the SCB to show from whom it had received the interest would raise
    a presumption that the SCB had failed to disclose/produce a material piece
    of evidence which would have thrown much light on the issue in
    controversy.

E         Contention raised by Shri Nariman that there was only one contract
    between SCB and Citi Bank and that was to deliver the 11.5% GOI 2009
    bonds for which it had paid valuable consideration or that the BRs issued
    by the Citi Bank ·.vere not independent of the main contract to supply
    11.5% GOI 200·9 bonds cannot be accepted. SCB had taken the SGLs of
F   Can bank with the clear intention that it wanted to exchange the BRs of Citi
    Bank with SGLs of Canbank. SCB was to get 11.5% GOI 2009 Bonds
    in exi;:hange of two BRs but SCB instead substituted that satisfaction by
    asking for and taking unconditionally the SGL of CMF. The obligation
    to deliver the bonds under BRs, in our opinion, was substituted by delivery
    of SGL of CMF.
G
         The BRs are dated 18th and 19th September, 1991, respectively, and
    on 19th September, 1991 the SCB wrote a letter returning the two BRs and
    asking of SGLs of Canbank Mutiial Fund from the Citi Bank. Proximity
    of these two dates, clearly indicates that the intention of the SCB was to
H   buy the SGLs of Canbank Mutual Fund otherwise they would not have .
     cm BANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]                517

written the letter on 19th September, 1991 itself. Proximity of these two A
dates and the manner in which whole transaction was completed indicates
that it was done with a purpose or a design. It has not been explained as
to how did SCB know that the Citi Bank had in its possession the SOL
of CMF. SCB must have known, being a big banking business company,
that the SOL issued by the CMF in favour of the Citi Bank was non- B
transferable. It could not provide any security to them. It had also been
dishonoured. Still SCB asked for and accepted the dishonoured SOL of
CMF. If the SOL given to them by the Citi Bank was 'useless' and
'worthless' then why did SCB gladly accept the same without any protest.
If it was their case that the SOL of CMF given to them was 'useless' or
 'worthless' it should have refused to accept it; far from doing so, the SCB C
not only accepted it but also acted upon it. It received interest from the
third party. It has not been explained as to why third party paid interest
of the SCB. Basically, it was for the SCB to explain and answer all these
questions which it has failed to do.
                                                                             D
      SCB in its letter dated 8th October, 1991 wrote to CMF that SCB had
bought from Citi Bank 11.5% GOI 2009 Bonds in the sum of Rs. 50 crores,
for which, the Citi Bank gave its two BRs. Significantly, it was stated in
the letter - "We understand that the same stock has been sold by you to
Citi Bank. Therefore, we returned their BRs in exchange of your SGL for E
Rs. 44,58,05,000. We now request you to issue a fresh SGL in our favour
for the same amount to enable us to lodge it urgently." This clearly
indicates that SCB has taken the SGL of Canbank with the clear
understanding that it wanted to exchange the BRs of Citi Bank with SGLs
of Canbank. The argument now raised that SCB only wanted 11.5% GOI
2009 Bonds is belied by this letter. It is specifically stated in this letter F
that it had known that Canbank had given its SGL in favour of Citi Bank
which the SCB wanted to secure. In order to secure it, it had returned the
BRs in exchange of SGL of Canbank in the sum of Rs. 44,58,05,000. It
asked the CMF to issue fresh SOL in their favour of the same amount to
enable it to lodge it urgently. This letter clearly indicates that the SCB G
wanted the SGL of CMF and it had exchanged it with the ;:wo BRs
knowingly, consciously and voluntarily. The submission now made that
SCB at all point of time was insisting on the delivery of 11.5% GOI 2009
Bonds cannot be accepted. Though this letter has not been formally proved
as the same has been denied by the CMF but since this was pleaded by H
     518                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
. A the plaintiff-SCB and the document was attached with the plaint, SCB
     cannot disown this document. It is bound by its own case set up in the
     Court.

           In the face of letter dated 19th September, 1991 written by the SCB
     to the Citi Bank asking for the SGLs of Canbank Mutual Fund in exchange
     of BRs and the subsequent letter dated 8th October, 1991 written by the
     SCB to the CMF to issue fresh SGLs in their favour of the same amount
     clearly indicates that the SCB substituted its satisfaction in place of 11.5%
     GOI 2009 Bonds for and taking unconditionally SGL of CMF.

           In their letter dated 17th June, 1992 the SCB did not say that a trick
     or fraud had been played on them by delivering useless and worthless
     dishonoured SGL as has been pleaded by it in its plaint or argued before
     us. Contrary to that it was stated in the letter:

·D            "Our clients returned the aforesaid two Bank Receipts and in
              exchange for the same you gave to our clients (a) your SGL for
              Rs. 5,41,95,000 and (b) a SGL of Canbcink Mutual Fund for
              Rs. 44,58,05,000 dtawn in your favour. We understand that
              when the aforesaid SGL for Rs.44,58,05,000 had been presented
 E            by you earlier on 27th May 1991 the same was dishonoured by
              the Reserve Bank oflndia. Our clients accepted documents at (a)
              and (b) above... "
                                                         [emphasis supplied}

     The words "our clients accepted documents A and B" clearly indicate that
 F the SGLs were accepted in the exchange of two BRs·without any protest
     thereby relieving the Citi Bank of its liability to give the 11.5% GOI 2009
     Bonds. Another point which needs to be highlighted from this letter is that
     the Citi Bank feigned its ignorance of having written the letter dated 19th
     September, 1991 asking for the SGL of CMF in exchange for two BRs.
 G   It has not been denied that such a letter was written but it was stated:

              " ... We note that you have failed to produce a copy of this letter,
              but even assuming that it exists we fail to see how this carri.es
              the matter further as the debt owed to our clients is not
:H            affected."
     cm BANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]                519

Nothing hinges on it but this just shows as to how their mind was A
working.

     Citi Bank has pleaded and contended that as SCB had of its own,
asked for and taken unconditionally the SGL of CMF and returned the two
BRs of Citi Bank duly discharged. It was under no obligation to either B
pay any sum or any security much less the refund the money. The
obligation was substituted by the SCB for delivery of SGL of CMF. The
SCB substituted the obligation to deliver the bonds under two BRs by
delivery of SGL thereby accepted the satisfaction in terms of Section 63
of the Indian Contract Act.
                                                                              c
     In the light of these facts, let us now consider the effect of Section
41, 62 and 63 of the Indian Contract Act, 1872. The same are reproduced
hereunder for ready reference:

        "41. Effect of accepting performance from third person.- When D
        a promisee accepts performance of the promise from a third
        person, he cannot afterwards enforce it against the promisor."

         "62. Effect of novation, rescission, and alteration of contract.-
         If the parties to a contract agree to substitute a new contract for E
         it, or to rescind or alter it, the original contract need not be
         performed."

        "63. Promise may dispense with or remit performance ofpromi~ ~- -
        Every promisee may dispense with or remit, wholly or in part, the F
        performance of the promise made to him, or may extend the time
        for such performance, or may accept instead of it any satisfaction
        which he thinks fit."

      In para 63 of the judgment, the Special Court has recorded a finding
to the effect:                                                             G

         "In this case the third party i.e. Canbank Mutual Fund has not
         consented to its SGL transfer form being transferred. Therefore,
         there is no discharge under alleged contract and there is no
         Novatio."                                                        H
    520                 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A         Novatio, rescission or alteration of a contract under Section 62 of the
    Indian Contract Act can only be done with the agreement of both the parties
    of a contract. Both the parties have to agree to substitute the original
    contract with· a new contract or •rescind or alter. It cannot be done
    unilaterally. Special Court was right in observing that Section 62 would
B   not be applicable as there was no novatio of the contract. Further it is
    neither Citi Bank's nor CMF's case nor even SCB's case that there was
    a tripartite arrangement between the parties by which CMF was to accept
    the liability. Such a case of novatio does not arise for consideration. Shri
    Andhyarujina, the learned senior counsel for Citi Bank has also not
C   seriously pressed for the Citi Bank's case being considered by reference
    to Section 61 abovesaid.

          Citi Bank pleaded in paras 8 & 9 of its plaint (in Suit No. 22 of 1994)
    that it was discharged of its obligation to deliver the bonds on the delivery
    of SGLs of CMF to SCB at its own request and therefore ceased to be liable
D   to SCB in respect of the agreement to deliver 11.5% GOI 2009 bonds.
    Learned Special Court in para 62 held that there was no unconditional
    dischaige pleaded by the Citi Bank and for this reliance was placed on the
    contents of para 9 of the plaint. In para 9 Citi Bank has stated that SGLs
    of CMF were taken by the SCB voluntarily and unconditionally at their
E   own request and returned the BRs issued by the Citi Bank, duly discharged,
    and, therefore, the remedy of the SCB, if any, is against the CMF or its
    trustees and not against the Citi Bank. That the Citi Bank was filing the
    suit to safeguard its interest so that in the event a decree is passed against
    the Citi Bank in the suit filed by the SCB then the Citi Bank will be entitled
    to claim relief against the CMF. It is true that Citi Bank in para 9 has not
F   pleaded complete discharge from its obligation but the Special Court failed
    to consider the averments made in para 8 of the plaint which categorically
    raises the plea that liability of the Citi Bank to deliver the bonds stood
    discharged and Citi Bank ceased to be liable to SCB. It is stated in this
    paragraph that the SGLs of CMF were handed over to SCB at their own
G   request on return of the two BRs, duly discharged, which completely
    discharges the Citi Bank and the Citi Bank ceased to be liable to the SCB
    to deliver 11.5% GOI 2009 bonds. The averment is to the following effect:

             "In the premises, the liability of the plaintiffs to deliver the said
H            securities stood discharged and the plaintiffs ceased to be liable
            cm BANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 521
               to the defendant No. 2 in respect of the agreement mentioned in A
               para 7 above."

             It is true that Citi Bank in its plaint did not specifically mention
        Section 63 of the Indian Contract Act but overall reading of the plaint
    ' · makes it clear that Citi Bank was relying upon the terms of Section 63 in B
        pleading that it stood discharged of its obligation to deliver the bonds under
        the two BRs on the delivery of SGL of CMF.

           Under Sec~ion 63, unlike Section 62, a promissee can act unilaterally
       and may
                                                                                        c
                i)     dispense with wholly or in part, or

                ii)    remit wholly or in part, the performance of the promise
                       made to him, or

                iii)   may extend the time for such performance, or                     D

                iv)    may accept instead of it any satisfaction which he thinks fit.

             It is Citi Bank's case that SCB of its own asked for and voluntarily
       accepted two SGLs from Citi Bank as satisfaction which it deemed fit in E


-      exchange for the Citi Bank's obligation to deliver GOI bonds of the face
       value of Rs. 50 crores under the two BRs. Such a plea would fall under
       Section 63. Special Court concluded that provisions of Section 41 of the
       Contract Act would be applicable to the facts of the case because the CMF
       had failed to deliver the GOI's bonds to the SCB and, therefore, the SCB F
       could claim it from the Citi Bank. In our opinion, the Special Court fell
       in error in applying Section 41 of the Indian Contract Act to the facts of
       the case. Section 41 of the Indian Contract Act only provides that the
       promisee cannot have double satisfaction of its claim i.e. from the
       promisor as well as third party. It does not give a cause of action to the   .
       promisee, but, to the promisor,. to contend that the promisee who has G
       accepted satisfaction from the third party cannot insist of the satisfaction
       of its claim from the promisor as well. No case under Section 41 of the
       Contract Act has been pleaded by the Citi Bank. It no where pleaded that
       CMF had delivered the bonds to SCB and, therefore, SCB cannot enforce
       its demand for delivery of bonds against the Citi Bank. Privy Council in H
      522                STTPREME COURT REPORTS (2003] SUPP. 4 S.C.R.
A· Har Chandi Lal and Others v. Sheoraj Singh and Others, AIR (1916) PC
      68 held that Section 41 of the Contract Act applies only where a contract
      has in fact been performed by some person other than the person bound
      thereby.     What is required by Section 41 is actual performance of the
      original promise and not a substituted promise. In Chegamull Suganmull.,,
 B    Sowcar v. V. Govindaswami Chetty & Others, AIR (1928) Mad. 972, it was
      held that actual performance has to be there for importing the applicability
      of Section 41. It was held:

                    " ... Much more than a bare promise is necessary under the
               Section. What is contemplated is actual performance of the
 c             original promise. According to the section, performance "by a
               stranger, accepted by the promisee, produces the result of
               discharging the promisor, although the latter has neither authorised
               nor ratified the act of the third party ... "

,D           The learned Special Court fell in error in holding that Section 41 of
      the Contract Act would be more appropriately applicable. Section 41 for
      the reasons set out above would not be applicable to the facts of the present
      case. It also fell in error in holding that Citi Bank did not plead complete
      discharge from performing its obligation in terms of Section 63. In our
 E    opinion, Citi Bank has specifically pleaded that it stood discharged from
      the performance of the original obligation on the delivery of SGLs to the
      SCB, which were asked for and accepted by SCB for reasons best known
      to it. SCB instead of the original satisfaction accepted another satisfaction,
      deemed fit by it, in terms of Section 63 of the fodian Contract Act.

 F·       Contention of Shri Nariman, learned senior counsel appearing for the
     SCB is that there has been only one contract between the Citi Bank and
   · the SCB and that is to give l l.5% GOI 2009 Bonds for which the SCB
     had paid valuable consideration to the Citi Bank. That BRs are not
     independent of the contract. As the bonds were not ready with the Citi
     Bank it gave instead the BRs with the understanding that bonds would
     be handed over as and when available. SGL of CMF were taken by the
     SCB as a step-in-aid for the delivery of bonds. The acceptance of SGL
     of CMF should not be taken as satisfaction in substitution to deliver the
     bonds as had heen agreed upon originally. It was contended that implied
~ H warranty must be read in the transaction asking for and accepting of SGL
     cm BANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]                523
of CMF. That principles of contractual interpretation mandate that A
interpretations adopted be reasonable and arise out ofnatural and probable
course of human conduct. The courts will not adopt an interpretation out
of context with the commercial dealings between parties and in a manner
unknown to trade and commerce. SCB has established that it did not
receive the bonds in spite of having paid full consideration, heavy burden B
should be put on the Citi Bank to show that it _has discharged its original
obligation by substituting it with supply of SGL of CMF to the SCB. That
it would be contrary to the normal, natural and probable co-irse of banking
business to deduce that SCB would be satisfied with neither the bonds nor
the monies thereof, but with SGLs which admittedly had no value or
significance. According to him the interpretation put on the letter dated ~
 19th September, 1991 be interpreted in a commercial sense so that it serves
the commercial purpose. To substantiate this, he placed reliance upon
paragraphs 777, 782, 921, 951, 952, 953 and 955 of Halsbury's Laws of
England, 4th Edition, Vol. 9, wherein it has been observed that the courts
can interpret the mercantile contracts in a way that it makes good D
commercial sense or to give efficacy to a contract to emancipate one side
from all the chances of failure, and to make each party to perform its parts
of the promise. He has relied upon certain observations made in Hi/las
& Co. Ltd. v. Arcos Ltd., (1932) All ER 494, Investors Compensation
Scheme Ltd. v. West Bromwich Building Society, (1998) 1 All ER 98, E
Stocznia Gdanska SA v. Latvian Shipping Co. & Others, (1998) 1 All ER
883, Antaios Cia Naviera SA v. Salen Rederierna AB, (1984) 3 All ER 229
and Union of India v. D.M Revri & Co., [1977] 1 SCR 483 at 487. We
 do not find any merit in this submission.

       SCB soon after the payment of Rs. 50 crores and receiving the BRs F
from the Citi Bank acknowledging its liability to deliver the bonds writes
a letter dated 19th September, 1991 asking for and accepting the SGL of
CMF. Admittedly, SGL of CMF was not honoured by the PDQ twice and
an endorsement to that effect had been made on the SGL. As to why a
creditor like SCB had asked for and accepted the instrument which was G
on the face of it unrealizable from the debtor which is even described by
it as 'useless and worthless'? It owed a duty of explanation to the Court
as to why did it ask for or accepted the delivery of such an instrument.
SCB has conspicuously and completely failed to give any explanation
either in its plaint or even in evidence. It is difficult to import an implied H
    524                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A' condition or warranty, as was sought to urged at the hearing, in the absence
  of such an explanation by the SCB. Contention that the words "in our
  favour" be read as introduced by necessary implication in the SCB's
  request for SGL of CMF and the expression - "We now request you to
  give us SGLs of Canbank Mutual Fund in exchange of the same" be read
B as "We now request you to give us SGLs of Canbank Mutual Fund in our
  favour in exchange of the same" to give it a commercial sense cannot be
  accepted. Such a re-writing of SCB letter of request of 19th September,
  1991 and imposing a qualification in the acceptance of the Canbank SGL
  by SCB is not permissible. The clear intention of SCB was to ask for and
  take the SGL of Canbanl< which was in possession of the Citi Bank. The
C said SGL was in favour of Citi Bank. SCB as a business house was clearly
  aware of the terms of an SGL of CMF from Citi Bank when it asked Citi
  Bank for it and accepted and retained it. For getting the SGL of CMF in
  its own favour it need not have routed its request through the Citi Bank.
  It could have straight away approached the Canbank for either buying the
D 11.5% GOI 2009 Bonds in its favour or for getting the SGL ofCMF drawn
  in its favour. A term can o~ly be implied by way of sense to give efficacy
  to the transaction which is intended by the parties. Implied terms in law
  are founded on the presumed intention of the parties. In this case, the
  intention of the SCB was clear and unambiguous. SCB for its own reasons
E wanted to take the SGL of CMF in possession of the Citi Bank..The
  subsequent receipt of intere.st on the face value of the price of bonds
  mentioned in the SGL is clear pointer to the fact that the SCB had taken
  the SGL of CMF from Citi Bank for its own purpose or at the behest of
  an undisclosed third party who paid interest to SCB. In the absence of any
F explanation as to how the SCB knew that Citi Bank was in possession of
  SGL of CMF; as to why it had asked for an instrument which on the face
  of it was unrealizable by it from the debtor; why did it accept and act upon
  the same, and, further treating itself as a beneficial owner and receiving
  interest on it, the implied condition or warranty such as it sought to be
  urged on behalf of SCB cannot be imported in the transaction. The plea
G of implied warranty is one made in desperation and is clearly an after
  thought.

         The plea of implied warranty is also negated by the fact that SCB had
    pleaded in its plaint in Suit No. 22 of 1994 that Citi Bank has "expressly
H   and impliedly warranted to SCB that Canbank would on the SCB's request
     CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 525
transfer the stock" Issue No. 3, namely, "Whether Defendant No. 1 gave A
any express or implied warranty of the nature alleged in para 13 of the
plaint." was framed on this plea. The onus of proving this issue was on
the SCB. Far from adducing any evidence the SCB simply instructed
its counsel to not to press the issue. Thus the plea of implied
warranty was expressly given up before the Special Court. It is not open B
to SCB to take up the plea of express or implied warranty now before us
in the appeal.

      Since on facts we have found that the SGL of CMF were taken by
tile SCB voluntarily knowing and understanding the consequences flowing
from it and the fact that plea of express or implied warranty was given up C
before the Special Court, we are unable to accept the contention of Shri
Nariman that there was an implied condition/warranty by the Citi Bank to
give the Bonds on the SGL being dishonoured.

      It was next contended by Shri Nariman that the acceptance of SGL D
of Canbank by SCB was a conditional discharge. Actual delivery of I I .5%
GOI 2009 Bonds could only discharge the liability of the Citi Bank and
not the mere delivery of SGL. On failure to get the 11.5% GOI 2009 Bonds
or return of the amount paid the SCB could fall back and sue on the original
consideration. For this he placed reliance on Brijbhusan Pande & Ors.      E
v. Ramjanam Kuer, AIR (1932) Patna 324, Parman Nand & Anr. v. Saliq
Ram & Ors., AIR (1926) Lahore 328, Ramdayal v. Maji Devdiji, AIR
(1956) Raj. 12, Lingam Narayan Das v. Punia Das, AIR (1959) Orissa
176, Subramniam Chettiar v. Muthiah Chettiar (died) & Ors., AIR (1984)
Madras 215. In Parman Nand & Anr. Case (supra) it was held that it was
a question of fact to be decided in each particular case as to whether the F
parties intended the subsequent Hundi to be an absolute or conditional
payment of the original debt. On the facts of the case the learned Judges
came to the conclusion that Hundis were given as a conditional payment
of the original debt and therefore the plaintiffs could revert to the original
consideration and based a claim thereon. In Brijbhusan Pande & Ors. and 0
Lingam Narayan Das cases (supra) the name of the payee was not
mentioned in the promissory note. It was held that in the absence of the
name of the payee in the promissory note the document was not a
promissory note and therefore r..o decree could be passed on the basis of
such an instrument. Where a plaintiff sues on a defective headnote, then, H
    526                 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A' on the failure of the headnote the plaintiff was entitled to sue on the loan
     itself. In Lingam Narayan Das case (supra) it was held that where a
     creditor takes a bill, note or cheque in payment he may either accept it in
     complete satisfaction of the debt, or may accept as a conditional payment
     only. The presumption in the absence of a clear indication to the contrary
B . is, that the payment by means of bill, note or cheque is a conditional
     payment only. The defendant upon whom the burden lay of establishing
     such an intention did not choose .to lead any evidence on the point and in
     the absence of any material on the record. It was not possible to come to
     the conclusion that there was such an intention. In Subramaniam Chettiar
C · ca_se (supra) the facts were that defendant executed two pronotes A and B
     and subsequently executed third pronote C for a sum which was total of
     A and B and endorsing on A and B that in view of C the sums due under
     A and B have been discharged. Pronote C was insufficiently stamped. It
     was held that instrument C was invalid and inadmissible in evidence and
D . therefore the promisee could rely on the original cause of action and claim
   · the recovery of the amount. None of these cases would be applicable to
     the facts of the present case.

           It is well settled that where an instrument, a cheque or negotiable
     instrument, is given by the debtor and accepted by the creditor, the question
E ' whether the instrument was taken as an absolute payment or a conditional
     payment is one of the fact depending on the intention of the parties. When
     the creditor takes an instrument by way of absolute satisfaction of the debt
     then the creditor cannot fall back on the original transaction and is
     restricted to the terms of that instrument only. In the present case the SCB
F ;. asked for and accepted an SGL of Canbank payable to the Citi Bank in
     absolute satisfaction of the Citi Bank's.original obligation to give to SCB
     bonds of the face value of Rs. 44.58 crores. SCB asked for the SGL of
     Canbank which was in possession of the Citi Bank and accepted the same
     voluntarily and unconditionally indicating to the fact that SGL was taken
G •.as satisfaction deemed fit within the meaning of Section 63 of the Contact
     Act. There· was no intention of the parties that taking of the SGL was
     conditional, i.e., that if SCB did not get the bonds from CMF, the SCB
     would hold Citi Bank liable for the bonds. Under the circumstances, the
                                                                                     .•
     authorities cited by the SCB ·of conditional acceptance of the pronote are
H not applicable.
     CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 527

       Shri Nariman also contended that asking for and acceptance of SGL A
from the Citi Bank is not proof of acceptance of the condition that SCB
had given up its claim for the original consideration. For this he placed
reliance on Firm Basdeo Ram Sarup v. Firm Dilsukharai Sewak Ram, AIR
(1922) Allahabad 461, Shyamnagar Tin Factory Private Ltd v. Snow
White Food Product Co. Ltd, AIR (1965) Cal. 541 and Union of India v. B
Narayan Lall, AIR (1953) Patna 152. In Firm Basdeo Ram Sarup's case
and in Shyamnagar Tin Factory Private Ltd's case the debtor sent the
money on the terms that it is to be taken in satisfaction of a larger claim
towards the total amount due and would not be entitled to the balance of
the amount. Creditor accepted the cheque and thereafter filed the suit for C
the balance amount. It was held that sending of a cheque for a smaller
amount along with a letter to the effect that it was in full and final
settlement of the debt did not amount to a discharge of the entire debt,
nor does it amount to payment or tender of the amount on any condition
that acceptance of the amount is in full and complete discharge of the entire D
debt. Acceptance of the cheque was not conclusive in law. The entire
matter was a question of fact which the court has to determine keeping in
view the true character of the transaction. It would be seen that in these
two cases the debtor had sent the cheque unilaterally and it was not the
creditor who had either remitted or accepted the lesser amount in satisfaction
of the entire amount. Section 63 of the Indian Contract Act, as was rightly E
held, did not have any applicability in such cases. Similarly in Union of
India's case (supra) the railways in order to meet the claim of the plaintiff
 by damages for non-delivery of railway consignment sent a cheque for
 lesser amount with an express stipulation in the letter accompanying the
 cheque that in case the plaintiff was not prepared to accept the amount he F ·
 should return the cheque, but, the plaintiff encashed the cheque and
 brought the suit against the railways for the balance amount. Plea of the
 railways that acceptance of the less~r amount was evidence of accord and
 satisfaction was not accepted and, in our view, rightly so. The principle
 applied was the same as in the earlier two cases, referred to above. In the G
 present case, as stated in the foregoing paragraphs, the SCB had substituted
 its original satisfaction by asking for and taking the SGL of CMF as
 deemed fit for its own reason which have not been disclosed to the Court.
 The cases cited by Mr. Nariman referred to in this paragraph under the
 circumstances would have no applicability.                                    H
    528                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A        SCB's next submission is that even if the court comes to the
  conclusion that as a matter of fact Citi Bank is discharged under Section-
  63 of the Contract Act, the decree should not be reversed and should only
  be m,odified by this Court in exercise of its special jurisdiction under
  Article 142 to do complete justice between the parties. In case both the
B decrees in Suit No. 20 of 1994 and 22 of 1994 are reversed, CMF would'
  be unjustly enriched and SCB would lose Rs. 45 crores with interest and
  such a result would be contrary to all notions of justice. It was contended
  that irrespective of any view this Court may take on documents, the Court
  has the power to do complete justice between the parties under Article 142
C of the Constitution of India by maintaining the decree in favour of SCB.
  That even if the court comes to the conclusion that decree in favour of SCB
  is liable to be set aside, it need not direct setting aside of the decree but
  may instead do substantial and complete justice between the parties by
  giving appropriate directions. We do not find any substance in this              r
  submission. Suit No. 22 of 1994 and Suit No. 20 of 1994 were back to
D back suits and the enforcement of decree in Suit No. 20 of 1994 was
  contingent upon a decree being passed in Suit No. 22of1994. Acceptance
  of the submission of the SCB would be that this court would be passing
  a decree against CMF indirectly. Result would be that the amount received
  by Citi Bank from CMF would be allowed to be retained by SCB, despite
E the fact that SCB's suit did not succeed. SCB's contention is based on the
  presumption that SCB had received neither securities nor money and on
  the other hand CMF has received the money and has unjustly enriched
  itself. CMF in both the suits has not only denied the allegations to this
  effect but has in fact pleaded a specific case to the contrary. Once the court
F comes to the conclusion that Citi Bank has discharged its obligation under
  Section 63 of the Indian Contract Act then :there is no· warrant or
  justification on the part of the Court to pass any order or decree or maintain
  a decree in favour of SCB. Suit No. 20 of 1994 is a contingent suit and,
  therefore, the said suit is not even liable to be tried much less decreed, if
G it is found that Citi Bank has discharged its obligation and is not liable to
  SCB. The submission of SCB that since a decree has been passed in the
  contingent suit, to the extent of decretal amount paid in the contingent
  decree, SCB's suit should be decreed cannot be accepted. Firstly it is to
  be decided in SCB's own suit (22of1994) whether it is entitled to a decree
H or not. If that suit is dismissed then the question of passing any decree
          CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.]                529
    in Suit No. 20 of 1994 which is a contingent suit would !lot arise. A
    Acceptance of the submission of the SCB would mean that though
    SCB's suit does not deserve to succeed but still it be maintained by
    passing a decree in the contingent suit which cannot be done. It would
    be travesty of justice rather than doing justice. The submission is, therefore,
    rejected.                                                                       B
          For the reasons stated above Civil Appeal No. 7941 of 1995 filed
     by the Citi Bank is accepted. Judgment and decree passed by the Special
     Court in Suit No. 22 of 1994 is set ~side and the suit is ordered to be
     dismissed with costs throughout.
                                                                                   c
           As a consequence to the aforesaid, Citi Bank becomes entitled to
     restitution of the total amount paid by it to Standard Chartered Bank
     (principal and interest) along with interest @ 12% p.a. from the date of
     receipt of payment by SCB provided it is paid on or before 30th November,
     2003 and in default to pay the interest@ 15% p.a. from the date of receipt D
     of payment till it is repaid by the Standard Chartered Bank. The Citi Bank
     would also be entitled to receive back the amount of costs it had paid to
     Standard Chartered Bank under the decree of the Special Court but the
     same would not carry any interest. Though the appellant had prayed that
     the interest be granted at the same rate at which it was granted by the
     Special Court (i.e. 20% p.a.) but we have reduced the same keeping in view E
     that interest rates have come down substantially in the recent years.

            Cost~_~n this appeal are assessed at Rs. 40 lakhs. Citi Bank would
    ·· also be entitled to the costs before the Special Court of the equivalent
       amount which were awarded against it by the Speciai Court while F
       decreeing the suit against it.

     Civil Appeal No. 8340 of 1995

            This appeal has been filed by. the CMF against the decree passed
     against it in Suit No. 20 of 1994. In Civil Appeal No. 7941 of 1995 we G
     have recorded a finding that Suit No. 20 of 1994 filed by the Citi Bank
     was a back to back suit to save itself in case a decree was passed against
     it in the suit filed by the Standard Chartered Bank in Suit No. 22 of 1994.
     In other words, it was a contingent suit based on the result in Suit No.
     22 of 1994. Mr. Kapadia, learned senior counsel appearing for the CMF H




I
    530                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A had addressed arguments at length supporting the submissions made on
    behalf ofCiti Bank against the Standard Chartered Bank. He did not say
    much against the decree passed in favour of the Citi Bank. We need not
    deal with the contentions raised by Mr. Kapadia as we have accepted the
    Civil Appeal No. 7941 of 1995 and set aside the decree passed against the
B   Citi Bank in Suit No. 22 of 1994. The consequence of the acceptance of
    the said appeal would be that this appeal has to be accepted which arises
    from a c~ntingent suit. Accordingly, the appeal filed by the CMF is
    accepted and the decree passed against it in Suit No. 20 of 1994 is set aside
    and the suit is ordered to be dismissed with costs throughout.

C         As a consequence to the aforesaid CMF becomes entitle to restitution
    of the total amount paid by it to the Citi Bank (principal and interest) along
    with interest @ 12% p.a. from the date of payment provided it is paid on
    or before 5th December, 2003 and in default to pay the inter~st @ 15%
    p.a. from the date of payment till it is repaid by the Citi Bank. Though the
D   appellant had prayed for interest @ 20% p.a~(which had been awarded by
    the Special Court) but we have reduced the same keeping in view that
    interest rates have come down substantially in the recent years. In Civil
    Appeal No. 7941 of 1995 also we have granted interest@ 12% p.a. only.

          The CMF would be entitled to receive the amount of costs it had paid
E under the decree of the Special Court but without interest. Costs in this
    appeal are assessed at Rs. 20 lakhs. CMF would be entitled to the costs
    before the Special Court of the equivalent amount which were awarded
    against it by the Special Court while decreeing the suit against it.

F         Both the appeals stand allowed in the .aforesaid terms.

    K.K.T.                                                     Appeals allowed.