Holding

The return of the original Banker’s Receipt raised a rebuttable presumption of absolute discharge, which SCB failed to rebut; therefore the discharge was unconditional and Section 63 of the Indian Contract Act applies.

Summary

Citibank sold IRFC bonds to Standard Chartered Bank (SCB) and issued a Banker’s Receipt (BR) which SCB later returned with an endorsement, also handing over a non‑transferable BR issued by CANFINA. SCB then demanded delivery of the bonds from Citibank, leading to suits in a Special Court. The Special Court held Citibank liable and ordered restitution to SCB, while also ordering CANFINA to deliver bonds to Citibank. On appeal, the Supreme Court held that the returned original BR created a rebuttable presumption of discharge under Section 114 of the Evidence Act, that the discharge was unconditional, and that Section 63 of the Indian Contract Act, not Section 41, applied. Consequently, the Special Court’s decree was set aside, SCB’s suit dismissed, and Citibank and CANFINA were each awarded restitution with interest.

Issues considered

The effect of the return of a Banker’s Receipt with endorsement on the discharge of the underlying obligation.
Whether the discharge of the obligation was conditional or absolute.
Whether Section 41 or Section 63 of the Indian Contract Act governs the situation.
The applicability of the presumption of discharge under Section 114 of the Evidence Act.
The entitlement of the parties to restitution and interest.

Legislation cited

Indian Contract Act, 1872s. 141, s. 41, s. 62, s. 63
Indian Evidence Act, 1872s. 114
Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992

Subjects

Banker’s ReceiptDischarge of obligationSection 63 Indian Contract ActSection 41 Indian Contract ActPresumption under Section 114 Evidence ActSpecial Courts Act 1992Securities transactionRestitutionConditional satisfactionThird‑party proceedings

Judgment

CITIBANK N.A. A
v.
STANDARD CHARTERED BANK

JULY 7, 2004

[R.C. LAHOTJ, CJ. AND ASHOK BHAN, J.) B
Economic offences :

Special Court (Trial ofoffences Relating to Transaction in Securities)
Act. 1992 : C
Purchase of !RFC bonds by Citybank from CANFINA-Delivery of
two Banker Receipt by CANFINA against full payment-Citibank selling
!RFC Bonds of certain value to CANFJNA-Jn consideration ofpayment,
CANFINA issued fresh BR and one of the Banker Receipts issued earlier
by CANFINA-Acceptance of BR~ by CANFINA-Citibank sells !RFC D
Bonds of certain value to Standard Chartered Bank and issued BRs-BRs
discharged and returned to Citibank-Suit for recovery qf bonds from
Citibank filed by SCB and third party proceedings for non-performance
filed by Citibank against CANFINA-Special Court decreed the suit' ofSCB
directing Citibank to pay certain sum by way of return consideration with E
interest thereon and also decreed the suit of Citibank directing CANFINA
to deliver the terms of the BR with coupon interest-Cross appeals-Held:
Since original BR duly discharged by SCB and delivered back to Citibank,
it raises a presumption in law that the BR duly discharged-SCB failed
to rebut-Hence finding of Special Court that the BRs not absolutely F
discharged by SCB cannot be accepted-SCB, a business concern
presumably aware of terms of the non-transferable BR of CANFINA
received from Citibank and accepted by it unconditionall~Hence, SCB
did not accept it as an authority to collect the securities in lieu of condition
of discharge-Jn the absence of any implied condition/warranty in the G
transaction, the plea ofimplied warranty clearly an afterthought-Citibank
is entitled to restitution ofthe total amount paid by it to Standard Chartered
Bank with interest and in cross appeal CANFINA became entitled to
,I restitution of the total amount paid by it to Citibank with interest-
Directions issued Evidence Act, 1872 Section 114 Illustration (i).
H
2 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A Indian Contract Act, 1872; Section 141 or Section 63. Applicability
of Held : Section 63 applicable-Special Court erred in applying Section
41 of the Act, since in the facts and circumstances of the case, provisions
of Section 63 of the Act attracted.

Bankers Receipt-Meaning of in the context of Banking Law and
B Practice.

Citibank, appellant in one of the appeals had purchased IRFC
Bonds of the face value of Rs. 50 Crores and Rs. 65 Crores respectively
from CANFINA appellant in another connected appeal. CANFINA in
C consideration of full payment thereof issued Banker Receipt Nos. 1401
and 1541 respectively. Later, Citibank sold IRFC of the face value of
Rs. 105 Crores to CANFINA and in consideration of payment thereof
issued a fresh Banker Receipt in connection with the transaction of
Rs. 40 Crores and also endorsed back BR. No. 1541 for transactions
D of Rs. 65 Crores. BRs. were accepted by CANFINA. Subsequently,
Citibank sold IRFC Bonds of face value of Rs. 72.50 Crores to
Standard Chartered Bank (SCB) and in consideration of payment
thereto delivered earlier BR No. 17/original BR in due discharge of its
liability for Rs. 72.50 Crores transaction and later replaced it by
E issuing a fresh BR No. 47 (co-incidentally number being the same) in
due discharge of its liability for Rs. 22.50 Crores and endorsed BR No.
1401 in discharge of its liability for 50 Crores Bonds. SCB in turn
discharged BR. No. 47 and returned the same with an endorsement of
due discharge. However, SCB made a demand for delivery of.Bonds
F under BR No. 1401 from Citibank and filed a suit for recovery, which
was transferred to Special Court. Citibank also filed a suit in the
nature of third party proceedings against CANFINA for non-
performance of their obligation under BR. No. 1401. Special Court
decreed both the suits and directed the Citibank to pay to SCB certain
sum by way of return consideration with interest and in another suit
G directed CANFINA to deliver to Citibank IRFC Bonds of the face
value of Rs. 50 Crores within the stipulated time period along with
coupon interest. Hence the present appeals/cross appeals.

It was contended by the appellant-Citibank that it was duly
H discharged of its obligation; that SCB did not take BK No. 1401 from
)-
CITIBANK N.A. v. STANDARD CHARTERED BANK 3
Citibank as an authority to colleet the securities/a conditio\'t'of discharge A
with full knowledge that BR No. 1401 was non-transferable; that the
Special Court erred in relying on Section 41 of the Indian Contract Act
to the facts and circumstances of the present case as case of the
appellant squarely falls under Section 63 of the Act; that the original
BR No. 47 was duly discharged by SCB and delivered back to the B
appellant; and that since SCB filed to discharge rebuttal presumption
of the discharge of BR No. 1401 implied condition of warranty under
the circumstances of the case could ·not be imported.

Respondent-Standard Chartered Bank submitted that the
discharge of Citibank's obligation upon CANFINA was conditional; C
that since Citibank failed to rebut the presumption, due inference that
discharge given by SCB was merely conditional one could be drawn;
that Citibank could discharge its obligation only on fulfilment of the
condition that BR. No. 1401 was honoured by CANFINA; that since
CANFINA failed to deliver the bonds to respondent, the respondent D
could that fall back upon its original consideration against the Citibank.

Allowing the appeal of Citibank and connected appeal ofCANFINA
and dismissing the other appeals, the Court

HELD : 1.1. A Bankers Receipt (BR) is a document issued by the
E
seller bank acknowledging that it has received money for the sale of
a particular security. It implies that the subject security is not readily
available for delivery and that the same shall be delivered against the
return of BR duly discharged, and in the mean time the securities are
held by the seller bank on account of the purchaser. The form of BR F
is not statutory, however, there is recommendatory form and rules
relating to BR issued by Indian Bankers Association. (17-G, HJ

1.2. The original BR 47 was discharged and delivered back to
Citibank. The same has been produced by Citibank from its possession. G
The return of original with an endorsement on its reverse duly signed
by the officer of SCB amounts to discharge of the BR. The discharged
BR being in possession of the Citibank would raise a presumption in
law under Section 114 of the Indian Evidence Act that the BR stood
duly discharged and its possession with Citibank would raise a rebuttal H
4 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A presumption of the discharge. The onus to rebut the presumption was
upon SCB, but SCB has failed to rebut the presumption. Hence, finding
recorded by the Special Court that there was nothing on the record
to show that there was an absolute discharge to the Citibank by SCB
cannot b1~ accepted. (19-F, G, H; 20-B]
B
Citibank N.A. v. Standard Chartered Bank, (2004] 1 SCC 12, relied
on.

1.3. SCB voluntarily and unconditionally received and accepted
CANFINA BR 1401 knowing fully well that the said BR was non-
C transferable. The obvious inference is that SCB desired the said
CANFINA BR for its own purpose inasmuch as the said BR otherwise
was useless. It owed an explanation as to why it took BR 1401, a non-
transferable document. SCB has not given any such explanation either
in its plaint or in evideuce. Its intention was to take BR which was in
D possession of Citibank. SCB being a business house presumably was
aware of the terms of BR from Citibank when it took, accepted and
retained it. The obvious inference is that the SCB did not take BR 1401
from Citibank as an authority to collect the seci~rities or that it was a
condition of the discharge. In the absence of any explanation the implied
E condition or warranty such as sought to be urged on behalfofSCB could
not be imported into the transaction. The plea of implied warranty is
one made in desperation and is clearly an after thought. (22-B-EJ

Citibank N.A. v. Standard Chartered Bank, (2004( 1 SCC 12, relied
F on.
2.1. The Special Court has erred in recording its finding. The
question of conferring authority or constituting SCB an agent of Citibank
for receiving bonds from CANFINA are matters of fact. In the absence
of any issue or evidence led by SCB, the burden cast on it could not be
G deemed to be discharged. The finding recorded by the Speci:it Court
that SCB acted as an agent of Citibank is not sustainable. (27-B, C(

2.2. When SCB discharged Citibank from its obligation under BR
47 by endorsement and delivery thereof to Citibank, it would be
H inconceivable that simultaneously it would make the discharge
CITIBANK N.A. v. STANDARD CHARTERED BANK 5

i conditional on SCB being able to obtain bonds from CANFINA. An A
agent acts only for his principal and the collection of bonds, if at all,
would be for the benefit of Citibank and not for SCB. It is not even
pleaded by SCB that it was given authority to appropriate the bonds
to itself. 127-D]

Mohan Lal Jogani Rice & Atta Mills v. Ram/al Onkarmal Firm &
B
Ors., AIR (1957) Assam 133; Maung Chit v. Roshan, AIR (1934) Rang
389; Ramdayal v. Maji Devdiji, AIR (1956) Raj. 12; Kandswami Gounder
v. K.P. Sivasubramania Iyer, AIR (1963) Madras 16; Firm Basdeo Ram
Sarup v. Firm Dilsukhrai Sewak Ram, AIR (1922) All 461; Firm Budhu
Mal v. Gokal Chand & Ors., AIR (1925) Lahore 328; Har Chandi Lal C
v. Sheoraj Singh, AIR (1916) PC 68 and Chegamull Suganmull v. V.
Govindswami, AIR (1928) Mad. 972, held inapplicable.

3. The Special Court fell in error in applying Section 41 of the
Indian Contract Act to the facts of the present case. Attempt on the part D
of the SCB to place reliance on Section 41 of the India Contract Act is
completely misplaced in the facts of the case. Instead, the case of Citibank
squarely falls under Section 63 of the Indian Contract Act. [26-E, F]

Citibank NA. v. Standard Chartered Bank, (2004] l SCC 12, relied
on. E

4. In the facts and circumstances of the case, Citibank is 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 and in default to pay the interest @ l5% p.a. from the date F
of receipt of payment till it is repaid by the SCB. Citibank would also
be entitled to receive back the amount of costs it had paid to SCB under
the decree of the Special Court but the same would not carry any
interest. In the connected appeal, CANFINA becomes entitled to
restitution of the total amount paid by it to the Citibank (principal and G
interest) along with interest@ 9% p.a. from the date of payment and
in default to pay interest @12% p.a. from the date of payment till it
is repaid by the Citibank. (29-A, B, H; 30-A]

5. In view of the above, Civil Appeal Nos. 9138 of 1996 and 4268
of 1997 have become infructuous and disposed of as such. [30-C] H
6 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7426 of
1996.

From the Judgment and Order dated 12/13.3.96 of the Special Courts
(Trial of Offences Relating to Transactions in Securities) at Bombay in Suit
No. 24 of 1994.
B
WITH

C.A. Nos. 9063, 9138/96 and 4268 of 1997.

T.R. Andhyarujina, Shanti Bhushan, R.F. Nariman, P.K. Samdani,
C Ms. Rashmi Viramani, R.K. Vinnani, Rajeev M. Roy, Pradeep Sancheli,
Ms. Sunita Dutt, Shaunak Thackar, Nilest. Parekh, Shailendra Bhardwaj,
T.K. Cooper, Mahesh Agrawal, Man Krishnan, Rishi Agrawal, U.C.
Agarwala and Ms. B. Vijayalakshmi Menon for the appearing parties.

The following Judgment/Order of the Court was delivered by
D
BHAN, J. : This Judgment shall dispose of Civil Appeal No. 7426
of 1996 arising in Suit No. 24of1994 (filed by Standard Chartered Bank
against Citibank) decided on 12th/13th March, 1996 and Civil Appeal No.
9063 of 1996 arising in Suit No. I of 1995 (filed by Cit!bank against
E Canbank Financial Services Ltd.), decided on 22/23/26th April, 1996. Civil
Appeal No. 9138 of 1996 has been filed by Citibank against Canbank
Financial Services Ltd. arising from the same suit i.e. Suit No. I of 1995.
Suits were tried by the Special Judge appointed under the Special Courts
(Trial of Offences Relating to Transactions in Securities) Act, 1992,
hereinafter referred to as 'the Act'.
F
In the year 1991-92, Reserve Bank of India noticed that large scale
irregularities and mal practices were committed in transactions in both the
Government and other securities, by some brokers in collusion with the
employees of various banks and financial institutions. The said irregularities
and mal-practices led to the diversion of funds from banks and financial
G institutions to the individual accounts of certain brokers. 'The Act' was
enacted 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 maintain the basic integrity and credibility of the banks
and financial institutions. The Special Courts were to be presided over by
H a"sitting Judge of the High Court to be nominated by the Chief Justice of
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 7

i the High Court within the local limits of whose jurisdiction the Special A
Court is situated, with the concurrence of the Chief Justice of India. The
Act also 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 being satisfied, on information
received that any person has been involved in any offence relating to B
transactions in securities after the !st day of April, 1991 and on or before
6th June, 1992 could notify the name of such person in he Official Gazette.
Special Courts were given the jurisdiction to deal with cases of civil as well
as criminal liability of the notified person.

A common object namely Banker Receipt (for short 'BR') No. 1401 C
is the subject matter of two suits in which there are three major players
namely Standard Chartered Bank (for short 'SCB'), Citibank and Canbank
Financial Service Ltd. (for short 'CANFINA'). The present appeals arise
out of a set of transactions between these three parties. Suit No. 24 of 1994
filed by SCB has been decreed against the Citibank and that is how the D
Citibank is in appeal in Civil Appeal No. 7426 of 1996 and Suit No. of
1995 filed by the Citibank has been decreed against the CANFINA and
that is how CANFINA is in appeal in Civil Appeal No. 9063 of 1996. Civil
Appeal No. 9138 of 1996 has been filed by Citibank against CANFINA
feeling partially aggrieved by the judgment and order of the Special Court
in Civil Suit No. I of 1995. E
The facts giving rise to these appeals are :

On 30th of December, 1991, Citibank purchased 9% JRFC Bonds of
., the face value of Rs. 50 crores from CANFINA. Citibank made full
payment for the above-mentioned bonds to CANFINA. In consideration F
thereof, CANFINA, in accordance with the market practices, delivered to
the Citibank Bankers Receipt No. 1401 dated 30th December, 1991. On
or about 3rd February, 1992, Citibank purchased similar 9% IRFC Bonds
of the face value of Rs. 65 crores from CANFINA. Citibank made full
payment from the same as well. In consideration whereof, the CANFINA G
delivered their Bankers Receipt No. 1541 dated 3rd February, 1992 to the
Citibank. On or about 5th February, 1992 Citibank sold to CANFINA 9%
!RFC Bonds of the face value of Rs. 105 crores. By way of delivery for
the same, Citibank first decided to return to CANFINA above-mentioned
• two Bankers Receipts Nos, 140 I and 1541. Citibank affixed its stamp and
made an endorsement on the reverse of the BR No. 1401 to the effect "BR H
8 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A exchanged against our sale of date." But subsequently instead of returning
the banker receipt No. 1401 to CANFINA, a fresh receipt of Citibank for
Rs. 40 crores was issued and sent to CANFINA along with bankers receipt
No. 1541 of Rs. 65 crores. These bankers receipts were accepted by
CANFINA against the Citibank's liability to CANFINA for Rs. 105 crores
of 9% of !RFC Bonds. According to the Citibank, as banker receipt No.
B 1401 ofCANFINA was not utlised the Citibank cancelled the endorsement
written on the reverse of the bankers receipt No. 140 I. According to
Citibank CANFINA's liability continued to remain subsisting under the
said BR.

C On or about 19th February, 1992 Citibank sold to SCB 9% !RFC
Bonds of the face value of Rs. 72.50 crores. Citibank received payment
for the same issued BR No. 47 dated 10th February, 1992 in favour of the
SCB in the sum of Rs. 72.50 crores.

On 28th February, 1992, CANFJNA wrote a letter to the Citibank
D requesting the Citibank to collect the !RFC Bonds of the face value of
Rs. 50 crores from SCB and release their bankers receipt No. 140 I.

On 4.3.1992 SCB discharged BR 47 dated 19.2.1992 for Rs. 72.50
crores and returned the sar.ie to Citibank with an endorsement of due
discharge on the reverse of the BR in exchange for CANFINA BR 1401
E of the face value of Rs. crores and Citibank's fresh BR No. 47 (co-
incidentally the number is same) for Rs. 22.50 crores for the balance
amount in favour of SCB. BR 4 7 dated 4th March, 1992 of the face value
of Rs. 22.50 crores was honoured and duly discharged and there is no
dispute about the same. According to the Citibank, its liability under BR
F No. 47 dated 19.2.1992 for Rs. 72.50 crores was discharged as it had
delivered BR No. 1401 of Rs. 50 crores given to it by CANFINA and BR
No. 47 dated 4th March, 1992 of the face value of Rs. 22.50 crores in
favour of SCB.

BR 47 dated 19.2.1992 and BR 47 dated 4.3.1992 would be referred
G to respectively as original BR and fresh BR wherever necessary.

SCB through its attorney made a demand for delivery of bounds from
Citibank under BR 1401 by its notice dated 4.6.1992, a copy of the letter
was endorsed to CANFINA as well. Citibank sent a reply to the attorney's
letter dated 4.6.1992 through its own attorney on 6.7.1992 denying its
H liability to deliver any securities or make payment of any amount to SCB.
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 9

i In or about 27th November, 1992, SCB filed a suit being No. 3828 A
of 1992 against the Citibank in the Bombay High Court alleging therein
that the Citibank had failed to deliver to them the securities given by the
said BR No. 140 I and claiming from it the securities and/or the value of
the securities. On or about 25th July, 1994 that suit was transferred to the
Special Court and renumbered as Suit No. 24 of 1994. B
On 29th December, 1994, Citibank filed a suit in the Special Court,
being Suit No. I of 1995, inter a/ia, against the CANFINA. The said suit
was in the nature of the third party proceedings as a consequence of the
above mentioned suit No. 24 of 1994 filed by the SCB. In Suit No. I of
1995 Citibank claimed that if the Citibank was held liable to the SCB in C
suit No. 24 of 1994, the Citibank was entitled to make a claim as against
CANFINA for non performance of their obligation under BR No. 1401 and
were entitled to the securities or their face value. Suit No. I of 1995 in
substance is in the nature of third party proceedings arising from Suit
No. 24 of 1994 filed by the SCB against the Citibank. D
SCB took out chamber summons dated 30th December, 1994 being
chamber summons 18/94 to join CANFINA as a party in Suit No. 24 of
1994. The said chamber summons was opposed by CANFINA on the
ground that SCB could have no claim against it and therefore it was neither
a necessary nor a proper party. The learned Special Court by its order dated E
7th February, 1995 held that CANFINA was a necessary and proper party
to the suit and the question as to whether the SCB could have any claim
against CANFINA or not was a question on merits which would be decided
at the final hearing of the suit.
F
Reversing its stand SCB on 2nd January, 1996 made an application
to drop CANFINA as a party defendant in Suit No. 24 of 1994. CANFINA
opposed this application as well but the learned Judge by an order dated
22nd January, 1996 allowed SCB to drop CANFINA from the said suit and
adjourned the suit for 2nd March, 1996 for final hearing. The learned Judge G
thus de-linked the two suits, although both the suits concerned the same
question i.e. whether the Citibank or CANFINA were liable for the
outstanding bankers receipt No. 1041 of CANFINA.

On I st March, 1996, Citibank made an application to the Special
Court in Suit No. I of 1995 that both the suits, Suit No. 24 of 1994 and H
10 SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.

A Suit No. I of 1995 be heard together as common questions of law and facts
arise for consideration in the suits. The Special Court dismissed the
application by its order dated 1.3.1996. Citibank, being aggrieved, against
the orders dated 22.1.1996 and 15.2.1996 filed two special leave petitions
in this court which were withdrawn by Citibank on 15th March, 1996 as
B the trial of Suit No. 24 of 1994 had commenced by that time.

It needs to be mentioned that Citibank's Suit No. I of 1995 initially
was against four defendants namely (I) Hiten P. Dalal (2) Standard
Chartered Bank (3) Canbank Financial Services Ltd. and (4) A.K. Menon,
the Custodian but later on Citibank got the suit dismissed against defendants
C Nos. 1, 2 & 4 for non-prosecution and allowed the suit to proceed only
against CANFINA.

By judgment dated 12th/13th March, 1996 the Special Court decreed
the Suit No. 24 of 1994 failed by SCB and ordered the Citibank to pay
D to the SCB a sum of Rs. 482,791,096 as and by way of return of
consideration and/or on the basis of monies had and received inclusive of
accrued interest at the coupon rate of 9%. The learned Jude awarded
interest@20% per annum equivalent to Rs. 414,803,528. The costs of Rs.
16,49,462 were also awarded to SCB being the actual cost. The Citibank
therefore paid a total amount of Rs. 899, 155,085 to SCB under the said
E decree. Citibank, being aggrieved, has therefore filed Civil Appeal No.
7426 of 1996 against SCB.

After conclusion of Suit No. 24 of 1994, the trial of Suit No. 1 of
1995 commenced in the middle of March, 1996. By its order dated 26th
F April, 1996 the Special Court passed a decree in favour of the Citibank
by ordering the CANFINA to deliver to Citibank 9% !RFC Bonds of the
face value of Rs. 50 crores within a period of 16 weeks along with the
coupon interest@ 9% per annum from 15% July, 1991 till the bonds were
delivered. The learned Judge an interest @ 9% per annum from 30th
December, 1991, the date CANFINA received the consideration till the
G date of repayment. Parties were directed to bear their own costs. CANFINA,
being aggrieved, against the aforesaid judgment has filed Civil Appeal No.
9063 of 1996 against Citibank.

Aggrieved against the findings of the learned Judge to the effect that
H Suit No. 1 of 1995 was not in the nature of third party proceedings and
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 11

1 therefore the Citibank was not entitled to recover the amount ordered by A
the Court to be paid to the SCB in Suit No. 24 of 1994 and the fact that
the learned Judge did not grant the Citibank interest @ 20% per annum
as had been granted in Suit No. 24 of 1994 and also that costs were not
awarded, the Citibank has filed Civil Appeal No. 9138 of 1996.

Facts in nutshell around which the controversy revolves are that
B
Citibank held BR No. 1401 of face value of Rs. 50 crores issued by
CANFINA in its favour. On 19th February, 1992 Citibank sold to SCB
bonds of the face value of Rs. 72.50 crores. Citibank received payment for
the same and issued original BR No. 47 dated 19th February, 1992 in
favour of SCB in the sum of Rs. 72.50 crores. On 28th February, 1992 c
CANFINA wrote a letter to the Citibank requesting the Citibank to collect
the !RFC Bonds of the face value of Rs. 50 crores SCB and release their
bankers receipt. On March 4, 1992 SCB "discharged" original BR. 4 7 dated
19.2.1992 at\tl tci~l.'.'from Citibank the CANFINA BR No. 1401 of the face
value of Rs. 50 crores and Citibank's fresh BR No. 47 dated 4th March, D
.,. 1992 of the face value of Rs. 22.50 crores. Almost after three months of
discharge of the original BR 4 7 and after break up of the scam, SCB by
its attorney dated 4.6.1992 made a demand for delivery of bonds from
Citibank under BR 1401 while endorsing a copy of letter to CANFINA,
Citibank sent a reply to the attorney's letter dated 4.6.1992 through its own
E
attorney on 6.7.1992 denying its liability to deliver any securities or to
make payment of any amount to the SCB. Thereafter SCB filed the suit,
reference to which has been made in detail in the foregoing paragraphs.

Case of the SCB in the suit is that having purchased bonds of face
value of Rs. 72.50 crores on 19.2.1992 SCB received from Citibank F
original BR 47 dated 19.2.1992 of the face value of Rs. 72.50 crores.
Thereafter on 4th March, I 993 SCB discharged and handed over original
BR 47 to Citibank. Against the same Citibank issued to the SCB fresh BR
47 of the face value of Rs. 22.50 crores and delivered CANFINA BR 1401
dated 30.12.1991 of the face value of Rs. 50 crores. It was contended that G
endorsement and delivery ofCANFINA BR to SCB was on the footing that
CANFINA would honor the same. At best the delivery of CANFINA BR
merely conferred an authority on SCB to receive bonds from CANFINA

• and it was an implied term of the arrangement between SCB and Citibank,
that if for any reason SCB did not receive bonds from CANFINA,
H
12 SUPREME COURT REPORTS (2004J SUPP. 3 S.C.R.

A Citibank's obligation would continue or would stand revived.
Case of the Citibank in its written statement is that SCB duly
discharged original BR 47 dated 19.2.1992 of the face value of Rs. 72.50
ctores. On receipt of CANFlNA BR 140 I of the face value of Rs. 50 crores
B and Citibank fresh BR 47 dated 4.3.1992 of the face value of Rs. 22.5
crores which was duly encashed. That the aforesaid discharged of Citibank
original BR 47 and receipt by SCB ofCANFINA BR 1401 was unconditional
and the Citibank was discharged of its obligation in respect of transaction
dated 19th February, 1992. That the Citibank was under no obligation to
either delivery the securities or the amount thereof and in any event, right,
C if any, of SCB was only against CAN FINA. That SCB should take action
against CANFINA.

On the pleadings of the parties the following issues were framed by
the Special Court :
D
(i) Whether the suit is not maintainable and should be dismissed
for non-joinder of Citibank Financial Services?

(ii) Whether upon the original Bankers Receipt No. 47 being
handed over duly discharged to the defendants the plaintiffs
E ceased to have any right in respect thereof or for the !RFC
Bonds of the face value of Rs. 72.50 crores mentioned
therein, the said discharge being in view of the plaintiffs
accepting unconditionally from the defendants the said
CANFINA Bankers Receipt No. 1401 for Rs. 50 crores and
F the defendants Bankers Receipt for IRFC Bonds of the face
value of Rs. 22.5 crores as alleged in paragraph 8 of the
written statement?

(iii) Whether there was an established and accepted market
practice to deliver and accept Bankers Receipts in effective
G discharge of the obligations to deliver physical securities as
stated in para 6( c) and para 12 of the written statement?

(iv) Whether the plaintiffs are estopped from denying that the
defendants have discharged their obligations in respect of
H the !RFC Bonds of the face value of Rs. 50 crores or from
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 13

contending that the defendants obligations in that behalf A
remains outstanding or subsisting as alleged in paragraphs
3 and 12 of the written statement?

(v) Whether the plaintiffs remedy is against Canfina only and
not against the defendants as alleged in paragraphs 12 and B
13 of the written statement of the defendants?

(vi) Whether the plaintiffs are entitled to any relief and if so,
what relief?

No oral evidence was led by SCB in the suit. Citibank also did not C
lead any oral evidence. The matter was thus required to be decided only
on the basis of the documentary evidence and facts admitted by the parties.

Under Issue No. 1 it was held that suit was maintainable and was not
liable to be dismissed for non-joinder ofCANFINA. Issue Nos. 2 & 4 were D
taken up together and were against the Citibank and in favour of the SCB.
It was held that the Citibank had failed to discharge its obligation in respect
of IRFC of the face value of Rs. 50 crores and its obligation continued in
this behalf. That there was no valid discharge of original BR 47 and mere
handing over of original BR 47 with an endorsement of due discharge on
the reverse of it did not amount to a valid discharge. That acceptance of E
BR 1401 for Rs. 50 crores ofCANFINA and Citibank's BR for !RFC bonds
of the face value of Rs. 22.5 crores did not amount to a valid discharge
of original BR ~7 and the Citibank continued to remain under obligation
to return the securities or the amount thereof. That there was a failure of
consideration inasmuch as neither the Citibank nor the CANFINA had f
delivered bonds worth Rs. 50 crores to SCB. Issue No. 3 was held to be
not proved. Issue No. 5 was answered in the negative. Issue No. 6 was relief
clause and was answered as per order.

In order of come to the conclusion arrived at on Issue Nos. 2 & 4
the Special Cou11 relied upon its own decision in Suit No. 22of1994 dated G
10th July, 1995 and Suit No. 20 of 1994 dated 7th July, 1995 between the
same parties relating to another set of transactions. The orders passed by
•· the Special Court in Civil Suit No. 22 of 1994 and Civil Suit No. 20 of
1994 were subject matter of Civil Appeal No. 7941 of 1995 ancl Civil
Appeal No. 8340 of 1995. These two appeals were accepted by this Court !-I
14 SUPREME COURT REPORTS (2004) SUPP. 3 S.C.R.

A by its judgment dated 8th October 2003, titled Citibank N.A. v. Standard
Chartered Bank, reported in (2004] I SCC 12 and judgment and order of
the Special Court was set aside.

Since the Special Court in the impugned judgment had relied upon
B its own judgment in Suit No. 20 of 1994 and Suit No. 22 of 1944 to decree
the SCB' s suit and held that facts of the present case are identical to the
facts in Civil Suit No. 20 & 22 of 1994, it would be necessary to refer to
the facts of those cases in detail before proceeding and examining the
submissions made by the respective learned counsel appearing for the
parties in these appeals.
c In those cases also the SCB had a transaction in securities with the
Citibank on 18th & 19th September, 199 I. In those cases as well the
original SGL transfer from which had been by the Citibank to the SCB was
exchanged by another SGL of a smaller amount of the Citibank and SGL
D transfer form issued by CMF to the Citibank. SGL transfer forms of CMF
were handed over to SCB on the basis of a letter issued by an officer of
the SCB. SCB filed Suit No 22 of 1994 against the Citibank and Canara
Bank and Others, trustees ofCMF. Citibank filed Suit No. 20 of! 94 against
the brokers in the transaction, (I) Hiten P. Dalal, (2) the SCB, and (3) CMF.
Suit No. 20 of 1994 was termed as a third party proceedings as has been
E contended in Suit No. I of 1995.

One of the question which arose for consideration before the Special
Court was whether the mere handing over of the SGL transfer form there
could be any discharge of liability. It held that mere handing over of SGL
F transfer form would not amount to discharge of the original consideration.
There could be no discharge unless was a satisfaction. Special Court also
held that Section 41 and not Sectiou 62/63 of the Indian Contract Act would
be applicable in the facts and circumstances of the case. Plea of Citibank
that as the discharged SGL came from its possession/custody, a rebuttal
G presumption be raised against SCB under illustration (i) of Section 114 of
the Indian Evidence Act and, as SCB had failed to rebut the presumption
by leading any evidence, it be deemed that Citibank was duly discharged
of its obligation was rejected. Similarly, the plea raised by the Citibank that
an adverse inference be drawn under illustration (g) of Section 114 of the
Indian Evidence Act against SCB as it had failed to produce/disclose the
H material piece of evidence which would have thrown much light on the
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 15
i issue in controversy was rejected. The Court also held that there could be A
no discharge unless there was satisfaction and the SCB could sue the
Citibank on its original consideration.

In Citibank's case (supra) the findings recorded by the Special Court
on the applicability of Sections 41, 62 and 63 of the Indian Contract Act B
were set aside. It was held that Section 41 was not applicable. Section 63
of the Indian Contract Act would be applicable. That SCB had taken the
SGL of CMF for the reason best known to itself. Citibank stood discharged
of its obligation under the SGL and no recovery could be made from it.
Since the SGL duly discharged was produced by the Citibank a rebuttal
presumption under illustration (i) of Section 114 of the Indian Evidence C
Act of due discharge of its liability by the Citibank could be raised which
the SCB failed to discharge by leading any evidence. Further as SCB had
failed to produce the material evidence which was in its possession or gave
any explanation as to why it had accepted SGL of CMF drawn in favour
of Citibank, an adverse inference under illustration (g) of Section 114 of D
-..,. the Indian Evidence Act could be raised against it. Appeals were accepted.
Suit filed by the SCB was dismissed. Consequently, the appeal filed by
CMF against Citibank, being a contingent suit, was also accepted and the
suit filed by the Citibank against CMF was ordered to be dismissed.

Learned Judge of the Special Court in the present appeals has held
E
that the facts similar as in the previous cases, the law applicable in the
present case would be the same. The finding on points of law on the
applicability of Sections 41, 62 and 63 of the Indian Contract Act were
reiterated. The benefit of illustrations (I) and (g) of Section 114 of the
Indian Evidence Act was denied to the Citibank. It was held that the F
plaintiff SCB at the highest agreed to act as an agent of the defendant
(Citibank) and collect the 50 Crores Bonds from CANFINA and appropriate
them towards the Citibank obligation to deliver 50 crores Bonds. On the
failure of the CANFINA to honour the commitment there was no way that
the SCB could enforce any claim against CAN FINA as there was no privily G
of contract between SCB and CANFINA. As the CANFINA had refused
to honour the BR, the Citibank was not discharged of its obligation until
such time as CANFINA honoured its commitment. The Citibank's obligation
to delivered ihe bonds could not be deemed to be discharged unless such
time as SCB received the bonds. On the failure of the CANFINA to honour H
16 SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.

A the commitment the SCB could fall back on the original consideration.

Shri Andhyarujina, learned senior advocate appearing for the appellant
submitted that this Court in Citibank's Case (supra) reversed the previous
judgment of the Special Court in Suit Nos. 20 & 22of1994. The Special
B Court relying upon its earlier judgment has held that Citibank was not
absolved of its obligation to make good the bonds or the value thereof by
merely handing over CANFINA BR 140 I to SCB. As the earlier judgment
of the Special Court in the previous suits has been set aside by this Court
was in Citibank's case (supra), the view taken by the learned Special Court
was erroneous and liable to be set aside. That the Citibank was duly
C discharged of its obligation by the SCB. Original BR dated 19.2.1992 was
returned to Citibank with an endorsement of due discharge on the reverse
of it. By this act of SCB alone, Citibank stood discharged of its obligation
to either furnish the securities or amount due thereon. That SCB took
CANFINA BR 1401 voluntarily and unconditionally knowing full well that
D the said CANFINA BR was non-transferable. The obvious inference was
that SCB desired the said CANFINA BR for its own purpose inasmuch as
the said BR otherwise would be useless. This fact conclusively proves that
SCB did not take BR 1401 from Citibank as an authority to collect the
securities or it was a condition of the discharge. That the Special Court
E clearly fell in error in placing relian~e on Section 41 of the Indian Contract
Act. Reliance on section 41 is completely misplaced iri the facts and
circumstances of the present case. According to him, the case of Citibank
squarely falls under Section 63 of the Indian Contract Act and the learned
Special Court erred in taking a view contrary to it. In the instant case,
admittedly. the original BR 47 was discharged and delivered back to
F Citibank. Since the original BR 47 dated 19.2.1992 was in the custody of
Citibank and produced by it in court a rebuttal presumption of due
discharge should have been raised in favour of the Citibank. SCB failed
to dislodge the presumption by leading any evidence whatsoever. That the
SCB failed to give any explanation as to why it accepted a non-transferable
G document (BR 1401). The implied condition of warranty under the
circumstances could not be imported as has been done by the learned
Special Court.

As against this, Shri Shanti Bhushan, learned senior advocate appearing
H for the respondent-SCB contended that in law the method of discharge of
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 17

contractual obligations involving a risk of non-performance by a third party A
creates a presumption of conditional satisfaction only. Primafacie, therefore,
any discharge of Citibank's obligation was conditional upon CANFINA in
fact delivering the bonds to SCB in satisfaction of Citibank's obligation.
That Citibank failed to produce any evidence to rebut this presumption.
Under the circumstances a due inference can be drawn that the discharge B
given by SCB was merely conditional. The legal presumption reflects the
) practical realities of business: and SCB's case that Citibank's obligation
was only discharged on condition that BR 1401 was honoured by
CANFINA makes legal, commercial and practical sense. That the stand
taken by the. Citibank. that SCB unconditional. gave up its legal rights C
against Citibank in return for BR 140 I which did not give any legal rights
to SCB against CANFINA defies commercial logic. Unlike the position in
Citibank's case (supra), there are no special facts on which the Citibank
could rely to displace the presumption. On failure of CANFINA to deliver
the bounds to SCB, SCB could fall upon its original consideration against
~Chi~ D
Learned counsel for the parties have been heard at length.

Fate of these appeals depends upon the answers to issue Nos. 2 &
4, as framed by the Special Court. We are in agreement with the view taken E
by the learned Special Court that the facts and points of law involved in
the present appeals are similar to the facts and points of law in the previous
cases [subject matter of Citibank's case (supra)]. The only difference on
'Y facts being that SCB in the previous cases specifically made a request to
the Citibank to give SGL of CMF which was in its possession whereas in F
the present cases there is no such request in writing. All other facts are more
or less similar.

A Bankers Receipt is a document issued by the seller bank
acknowledging that it has received money for the sale of a particular
security. It implies that the subject security is not readily available for G
delivery and that the same shall be delivered against the return of Bankers
Receipt duly discharged, and in the mean time the securities are held by
> the seller bank on account of the purchaser. The form of BR is not statutory,
however, there is a recommendatory form and rules relating to BR issued
by Indian Bankers Association. H
18 SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R. ..
A Fact that Citibank was discharged of its obligation under BR 47 dated
19.2.1992 stands admitted by SCB in its pleadings as well as the
submission before the Special Court. SCB in para 7 of the plaint, which
reads.

"Thereafter, on or about 4th March, 1992, the plaintiffs discharged
B and handed over Bank Receipt No. 47 to the 1st Defendants.
Against the same, the I st Defendants issued to the plaintiffs a
Bank Receipt of the I st Defendants favouring the Plaintiffs for 9%
!RFC (1/1) Bonds of the face value of Rs. 22.5. crores and also
delivered to the Plaintiffs a Bank Receipt bearing No. 1401 dated
c 30th December, 1991 issued by Canbank Financial Services
Limited (Canfina). The said Bank Receipt of Canfina was in
favour of the I st Defendants covering 9% !RFC bonds of the face
value of Rs. 50 crores ... "

D has clearly admitted that Citibank was duly discharged of its obligation
under original BR 47 dated 19.2.1992 on receipt of BR 1401 dated
30.12.1991 of the face value of 50 crores issued by CANFINA in favour
of Citibank and Citibank own BR 47 dated 4.3.1992 of the face value of
Rs. 22.5 crores.

E Similar admission was made in the course of trial by the advocate
appearing for SCB and recorded by the learned Special Court in its
judgment as follows :

"Mr. Vahanvati submits, in my view correctly, that the suit has
F proceeded on. certain admitted facts i.e. :

(a) that the defendants sold to the plaintiffs Rs. 72.5 crores 9%
!RFC (I/I) Bonds on 19th February, 1992;

(b) that the defendants received full consideration for this sale;
G
(c) that the defendants issued Bankers Receipt No. 47 (Ex.B)
for Rs. 72.5 crore Bonds;
(

( d) that 011 4th March, 1992, the origmal Bankers Receipt No.
H 4 7 was returned discharged to the defendants on the
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 19
i
defendants handing over to the plaintiffs Canfina Bankers A
Receipt No. 1401 for Rs. 50 crores and their own fresh
Bankers Receipt No. 47 for Rs. 22.5 crores."

SCB neither in the plaint nor in the submissions made before the
Special Cou11 says that discharge of BR 47 dated 19.2.1992 was in any B
manner conditional.
,.
The fact that original BR 47 was unconditionally discharged and
returned to Citibank is established by the SCB's endorsement made on the
reverse o the original BR 4 7 dated 19.2.1992 which makes no qualification
or condition, which reads: c
"BRX for Canfina F.V. 50 crs. Sd."

The fact that original BR 47 dated 19.2.1992 was unconditionally
discharged is also corroborated by SCB's own document namely BR held
Register which records return of original BR 47 to Citibank and exchange D
with CANFINA BR of Rs. 50 crores without any qualification or condition.
The same reads :

"Given to Citi Sd 4.3.92. Ex. With Canm 50 Cr. Bal. 22.50 Cr."
E
All these facts clearly indicate that SCB discharged the Citibank's BR
47 dated 19.7.1992 and handed over the same to the Citibank. Against the
same, Citibank issued to SCB and SCB took Citibank's fresh 47 of the face
value of Rs. 22.5 crores and CANFINA's BR 1401 of the face value of
Rs. 50 crores dated 30.12.1991.
F
Admittedly, the original BR 47 was discharged and delivered ·back
to Citibank. The same has been produced by the Citibank from its
possession. The return of original with an endorsement on its reverse duly
signed by the officer of SCB amount to discharge of the BR. This was the
mode of discharge of BRs. The discharged BR being in possession of the G
Citibank would raise a presumption in law under Section 114 of the Indian
Evidence Act, 1872, that the BR stood duly discharged. Section 114 of the
) Evidence Act 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 H
20 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A business, in their relation to the facts of the particular case. Illustration (i)
of Section 114 provides that Court may presume 'that when a document
creating an obligation is in the hands of the obligor, the obligation has been
discharged'. BR 47 dated 1.2.1992 was in the custody of the Citibank. Its
possession would raise a rebuttal presumptipn of the discharge of the said
B BR. The onus to rebut the presumption was upon SCB. SCB has failed to
rebut the presumption by leading by evidence that the obligation under BR
47 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 to the Citibank by SCB cannot be accepted. The law laid
C down by this Court in Citibank's case (supra) to the following effect in
paras 32 to 34 is clearly applicable to the present case and the same read
as under :

"32. This finding has not been challenged. Further the return of
two BRs with the stamp of the SCB on its reverse duly signed by
D 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 Evidence Act, 1872 that
the BRs stood duly discharged. Section 114 provides that the
Court may presume the existence of any face which it thinks likely
E
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 Court may presume 'that when a document creating
an obligation is in the hands of the obligor, the obligation has been
F 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 filed to rebut the
presumption by leading any evidence that the obligation under the
G 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 an officer of the SCB authenticating that
H it had been discharged.
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 21

33. What is the effect of production of documents by promissor A
from its custody was considered in Chaudhri Mohammad Mehdi
Hasan Khan v. Sri Mandir Das, [L.R. 39 Indian Appeals I84].
In the said case, a suit was field on the basis of mortgage deed
for the recovery of Rs. 62,000 by way of sale of the mortgage
premises. At the time of institution of the suit the plaintiff B
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 the endorsement of payment by the plaintiff. C
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
of the document by the defendant from his custody raised a D
rebuttal presumption of the discharge of the debt.

34. 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 Citi Bank raised a rebuttable presumption that Citi E
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 F
of 1994 whatsoever as to why it had asked for and took
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."
G
SCB has failed to prove that the discharge of original BR 4 7 dated
91.2. I 992 given by it was conditional. It did not lead any evidence.
Citibank had denied that the discharge given to it was conditional.
According to Citibank, the discharge was voluntary and unconditional. No
issue was framed. The burden of disproving discharge of BR 47 and of H
22 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A Citibank's obligation to deliver bonds to SCB lay upon SCB as was held
in Citibank's case (supra). Whether discharge is absolute or unconditional
is a question of fact. In view of the presumption of discharge arising from
illustration (i) of Section 114 of the Evidence Act, the burden of disproving

B
discharge was on SCB and factual evidence had to be led by SCB to prove
whether discharge was conditional. No such attempt was made by SCB.
..
SCB voluntarily and unconditionally received and accepted CAN FINA
BR 140 I knowing fully well that the said BR was non-transferable. The
..
obvious inference is that SCB desired the said CANFINA BR for its own
C purpose inasmuch as the said BR otherwise is useless. It may be noticed
that SCB took BR 1401 within 14 days of the original transaction of
19.2.1992 in exchange. It owed an explanation as to why it took BR f401,
a non-transferable document. SCB has not given any explanation either in
its plaint or in evidence as to why it took BR 140 I. The intention of SCB
was to taken BR of CANFINA which was in possession of Citibank. SCB
D being a business house presumably was aware of the terms of BR of
CANFINA from Citibank when it took, accepted and retained the BR of
CANFINA from Citibank. The obvious inference is that the SCB did not
take BR 140 I from Citibank as an authority to collect the securities or that
it was a condition of the discharge. This Court in Citibank's earlier cases
E (supra) drew an adverse inference under illustration (8) of Section 114 of
the Evidence Act against the SCB on similar facts ~md held that the SCB
owed a duty of explanation to the Court as to why it accepted the delivery
and retained possession of such an instrument (refer to paras 36 to 38). In
the absence of any explanation the implied condition or warranty such as
F sought to be urged on behalf of SCB could not be imported into the
I
transaction. The plea of implied warranty is one made in desperation and
is clearly an after thought. Relevant observations in this regard are
contained in paras 40 & 54 which are reproduced :

"40. The BRs are dated 18th and 19th September, 1991,
G respectively, and on 19th September, 1991 the SCB wrote a letter
. returning the two BRs and asking of SGLs of Can bank Mutual
Fund from the Citi Bank. Proximity of these two dates, clearly
indicates that the intention of the SCB was to buy the SGLs of
Canbank Mutual Fund otherwise they would not have written the
H letter on 19th September, 1991 itself. Proximity of these two dates
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 23

and the manner in which whole transaction was completed A
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 ofCMF, SCB must have known, being
a big banking business company, that the SGL issued by the CMF
in favour of the Citi Bank was non-transferable. It could ·not
B
provide any security to them. It had also been dishonoured. Still
SCB asked for and accepted the dishonoured SGL ofCMF. lfthe
SGL given to them by the Ci ti Bank was 'useless' and 'worthless'
' then why did SCB gladly accept the same without any protest. It
is was their case that the SFL ofSMF given to them was 'useless'
or 'worthless' it should have refused to accept it, far from doing c
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 of the SCB. Basically, it was for the SCB
to explain and answer all these questions which it has failed to
do. D

54. SCB soon after the payment of Rs. 50 crores and receiving
the BRs from the Citi Bank acknowledging its liability to deliver
the bonds writes a letter dated i9th September, 1991 asking for
and accepting the SGL of CMF. Admittedly, SGL of CMF was E
not honoured by the PDO 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 on the face of
it unrealizable from the debtor which is even described by it as
'useless and wo1ihless'? It owed a duty of explanation to the Court
as to why did it ask for or accepted the delivery of such an F
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 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 G
introduced by necessary implication in the SCB's request for SGI
of CMF and the expression - "We now request you to give us
SGLs ofCanbank Mutual Fund in exchange of the same" be read
s "We now request you to give is SGLs ofCanbank Mutual Fund
in our favour in exchange of the same" to give it a commercial
H
24 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A sense cannot be accepted. Such a re-writing of SCB Jetter of
't
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 was in possession of the Citi Bank. The said SGL
was in favour of Citi Bank. SCB as a business house was clearly
B 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 for 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 11.5% GO! 2009
c Bonds in its favour or for getting the SGL of CMF drawn in its
favour. 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 Jaw are founded on the presumed intention of
the parties. In this case, the intention of the SCB was clear and
D unambiguous. SCB for its own reasons wanted to take the SGL
of CMF in possession of the Citi Bank. The subsequent receipt
of interest on the face value of the price of bonds mentioned in
the SGL is clear pointer to this fact that the SCB had taken the
SGL ofCMF from Citi Bank for its own purpose or at the behest
of an undisclosed third party who paid interest to SCB. In the
E absence of any explanation a 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,
F the implied condition or warranty such as it sought to be urged I
on behalfofSCB cannot be imported in the transaction. The plea
of implied warranty is one made in desperation and is clearly an
after thought."

For the reasons stated above, it is held that SCB voluntarily and
G unconditionally received and accepted non-transferable CANFINA'S BR
1401 with an obvious inference that SCB desired the said CANFINA BR
for its own purpose for the reasons best known to itself.

The Special Court fell in error in applying Section 41 of the Indian
H Contract Act to the facts of the present case. Attempt on the part of the
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 25

SCB to place reliance on Section 41 of the Indian Contract Act is A
completely misplaced in the facts of the case as had been held by the this
Court in Citibank's earlier cases (supra). Section 41 of the Indian Contract
Act only provides that the promisee cannot have doubt satisfaction of its
claim i.e. from the promisor as well as a third party. It does not give a cause
ofaction to the promisee, but, to the promisor, to contend that the promisee B
who has accepted satisfaction from the third party cannot insist on the
satisfaction of its claim from the promisor as well. The case of the Citibank
would squarely falls under Section 63 of the Indian Contract Act, as was
held in Citibank's earlier cases (supra). It was observed in paras 50 to 52
as follows.
c
"50. Under Section 63, unlike Section 62, a promisee can act
uni laterally and may

(i) dispense with wholly or in part, or

(ii) remit wholly or in part,
D

the performance of the promise made to him, or

(iii) may extend the time for such performance, or
E
(iv) may accept instead of it any satisfaction which he thinks fit.

51. 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 obligation to
deliver GO! bonds of the face value of Rs. 50 crores under the F
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
could claim it from the Citi Bank. Jn our opinion, the Special G
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, H
26 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A to contend that the promisee who has 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 placed by the City Bank. It no where pleaded that
MCF had delivered the bonds to SCB and, therefore, SCB cannot
B enforce its demand for delivery of bonds against the Citi Bank.
Party Council in 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
c promise and not a substituted promise. In Chegamull Suganmull
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 :

D "Much more than a bare promise is necessary under the
Section. What it contemplates is actual performance of the
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 ... "
E
52. 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
F Citi Bank did not plead complete discharge from performing its
obligation in terms of Section 63. Jn our opinion, City 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 interest of the original satisfaction accepted
G another satisfaction, deemed fit by it, in terms of Section 63 of
the Indian Contract Act."

Learned Special Court recorded a finding that SCB by accepting BR
1401 of CANFINA at the highest agreed to act as an agent of Citibank and
H collect bonds of the face value of Rs. 50 crores from CANFINA and
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 27

appropriate them towards Citibank's obligation to deliver the bonds of the A
face value of Rs. 50 crores. If CANFINA refused, then there was no way
that the SCB could enforce any claim against CANFINA as there was no
contract between CANFINA and SCB. Under the circumstances the
obligation of the Citibank to deliver the bonds would not stand discharged
unless such time the SCB receive the said bonds. The learned Special Court B
has erred in recording the above-said finding. The question of conferring
authority or constituting SCB agent of Citibank for receiving bonds from
CANFINA are matters of fact. In the absence of any issue or evidence led
by SCB, the burden cast on SCB could not be deemed to be discharged.
The finding recorded by the Special Cami that SCB acted as an agent of C
Citibank is not sustainable.

When SCB discharged Citibank from its obligation under BR 47 by
endorsement and delivery thereof to Citibank, it would be inconceivable
that simultaneously it would make the discharge conditional on SCB being
able to obtain bonds from CANFINA. An agent acts only for his principal D
and the collection of bonds, if at all, would be for the benefit of Citibank
and not for SCB. It is not even pleaded by SCB that SCB was given
authority to appropriate the bonds to itself.

Shri Shanti Bhushan learned senior advocate during the course of the E
arguments placed reliance on the following judgments to contend that
discharge was conditional. Mohan Lal Jogani Rice & Atta Mills v. Ram/al
Onkarmal Firm & Ors., AIR (1957) Assam 133; Maung Chit v. Roshan,
AIR (1934) Rang 389; Ramdayal v. Maji Devdiji, AIR (1956) Raj. 12;
Kandswami Gounder v. KP. Sivasubramania Iyer, AIR (1963) Madras 16;
,. Firm Basdeo Ram Sarup v. Firm Dilsukharai Sewak Ram, AIR (1922) ALL F
46 I; Firm Budhu Mal v. Gokal Chand & Ors., AIR (I 926) Lahore 328;
Har Chandi Lal v. Sheoraj Singh, AIR (1916) PC 68 and Chegamull
Suganmull v. V. Govindswami, AIR (1928) Mad. 972.

Most of these judgments were cited before us during the course of G
the hearing of the Citibank's case (supra). The same were distinguished
and after elaborate discussion, it was held that none of these cases would
be applicable to the facts of the present case (refer to para 57). It was
observed in para 59 as follows :

H
28 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A " .... In the present case, as stated in the foregoing paragraphs,
SCB had substituted its original satisfaction by asking for and
taking SCB ofCMF as deemed fit for its own reasons which have
not been disclosed to the Court. The cases cited by Mr. Nariman
referred to in this paragraph under the circumstances would have
nq applicability.
B
In view of our discussion in the Citibank's earlier cases, we need not
to discuss individual authorities cited at the bar.

A faint attempt was made in the end to contend that even if the Court
C comes to the conclusion that as a matter of fact Citibank is discharged
under Section 63 of the Indian Contract Act the decree should not be
reversed and the same should only be modified by this Court in exercise
of its special jurisdiction under Article 142 to do complete justice between
the parties. In case both the decrees in the suit Nos. 24 of 1994 and I of
D 1995 are reversed, CANFINA would be unjustly enriched and SCB would
lose Rs. 50 crores with interest and such a result would be contrary to all
notions of justice. It was contended that irrespective ofany view this court
may take on documents, the Court has the power to do complete justice
between the parties under Article 142 of the Constitution of India by
maintaining the decree in favour of SCB. Suit No. 24 of 1994 and Suit No.
E 1 of 1995 were back to back suits and the enforcement of decree in Suit
No. 1 of I 995 was contingent upon a decree being passed in Suit No. 24
of 1994. Acceptance of the submission of SCB would be that this Court
would be passing a decree against CANFINA indirectly. Submission of
SCB that since a decree has been passed in the contingent suit, to the extent
F of decretal amount paid in the contingent suit, suit filed by SCB should •
be decreed, cannot be accepted. Similar submission was rejected after
elaborate discussion by this Court in Citibank's case (supra). It was
observed that 'acceptance of the submission of SCB would mean that
though SCB's suit does not deserve to succeed but still it be maintained
G by passing a decree in the contingent suit which cannot be done. It would
be a travesty of justice rather than doing justice'. (refer to para 60).

For the reasons stated above, Civil Appeal No. 7426 of 1996 filed
by Citibank is accepted. Judgment and decree passed by the Special Court
in Suit No. 24 of 1994 is set aside and the suit is ordered to be dismissed
H with costs throughout.
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 29
?
As a consequence to the aforesaid, Citibank becomes entitled to A
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 01.09 .2004 and
in default to pay the interest@ 15% p.a. from the date of receipt of payment
till it it repaid by the Standard Chartered Bank. Citibank would also be
B
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 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 that interest rates
have come down substantially in the recent years. c
Costs in this appeal are assessed at Rs. 20 lakhs. Citibank would also
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. D
' Civil Appeal No. 9063 of 1996

This appeal has been filed by the CANF!NA against the decree passed
against it in Suit No. I of 1995. In Civil Appeal No. 7426of1996 we have
recorded a finding that Suit No. 1 of 1995 filed by the Citibank was a back E
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. 24 of 1994. In other
words, it was a contingent suit based on the result in Suit No. 24 of 1994.
.. Learned senior counsel appearing for the CANFINA had addressed
arguments at length supporting the submissions made on behalf of Citi
F
Bank against the Standard Chartered Bank. We need not deal with the
contentions raised by learned senior counsel as we have accepted the Civil
Appeal No. 7426 of 1996 and set aside the decree passed against the
Citibank in Suit No. 24of1994. The consequence of the acceptance of the
said appeal would be that this appeal is accepted. Accordingly, the appeal
filed by the CANFlNA is accepted and the decree passed against it in Suit G
No. 1 of 1955 is set aside and the suit is ordered to the dismissed.

... As a consequence to the aforesaid CANFINA becomes entitled to
restitution of the total amount paid by it to the Citibank (principal and
interest) along with interest @ 9% p.a. from the date of payment provided H
30 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A it is paid on or before 01.09 .2004 and in default to pay the interest @ 12%
p.a. from the date of payment till it is repaid by the Citibank. Though the
appellant had prayed for higher rate of interest but we deem it appropriate
to grant the same rate of interest which had been granted by the Special
Court. While decreeing the suit No. 1 of 1995. We decline to grant costs
B in the appeal as the Special Court had not granted any costs while decreeing
the suit of Citibank . The parties in this suit shall bear their own costs
throughout.

Civil Appeal o. 9138 of 1996

C In view of acceptance of Civil Appeal No. 9063 of 1996 and as a
consequence dismissal of the suit No. I of 1995 tiled by the Citibank, this
appeal has become infructuous and disposed of as such.

The appeals stand disposed of in the above terms.

D ORDER

BHAN, J. : This appeal was directed to be tagged with Civil Appeal
No. 7941 of 1995 by this Court's order dated 15.9.1997, decided on 81h
October, 2003 and reported in [2004] I SCC 12. Jn view of the acceptance
E of the said appeals and dismissal of the suit tiled by the SCB, this appeal
has become infructuous and is dismissed as such

S.K.S. Appeal allowed/dismissed.

..