Holding

SCB validly acquired title to the suit bonds and is entitled to registration as the owner, while CMF acquired no right to the bonds.

Summary

The case concerns the ownership of Rs. 50 crore 9% tax‑free bonds (the "suit bonds") issued by Nuclear Power Corporation Ltd. (NPCL). Andhra Bank Financial Services Ltd. (ABFSL) sold the bonds to Standard Chartered Bank (SCB) on 26‑27 February 1992, and SCB paid consideration and received a Banker's Receipt. Canbank Mutual Fund (CMF) later claimed ownership, alleging it bought the bonds via broker Hiten P. Dalal (HPD) and sought registration of the bonds in its name. The Special Court held the suit a title suit, accepted the 15% arrangement between SCB and HPD, and ruled in favour of CMF, finding SCB had lost title. On appeal, the Supreme Court held the suit was a title suit, SCB had validly acquired title by purchase from ABFSL, the 15% arrangement did not transfer ownership to HPD, CMF failed to prove payment of consideration, and res judicata applied. Consequently, SCB’s title was affirmed and CMF’s claim dismissed.

Issues considered

Whether the suit is a declaratory suit or a title suit
Whether SCB validly acquired title to the suit bonds from ABFSL
Whether the 15% arrangement between SCB and HPD transferred ownership to HPD
Whether CMF proved a bona‑fide purchase for value of the suit bonds
Whether the doctrine of res judicata applies despite Section 13 of the Special Courts Act
Whether estoppel can be invoked against SCB
Effect of the Benami Transactions (Prohibition) Act, 1988 on the claims
Interpretation of Sections 108, 111 of the Companies Act, 1956 and related registration provisions

Legislation cited

Benami Transactions (Prohibition) Act, 1988s. 13, s. 3, s. 4(2)
Code of Civil Procedure, 1908s. 11
Companies Act, 1956s. 108, s. 110, s. 111
Indian Evidence Act, 1872s. 110, s. 114
Sale of Goods Act, 1930s. 27
Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992s. 10, s. 13
Specific Relief Act, 1963s. 34
Transfer of Property Act, 1882s. 130, s. 131, s. 132, s. 133, s. 134, s. 135, s. 136, s. 137

Subjects

securitiesbond ownershiptitle suitres judicata15% arrangementbenami transactionstransfer of securitiesCompanies ActSpecial Courts Actevidentiary burdenestoppelblank transfer deedsecurities scam

Judgment

• j STANDARD CHARTERED BANK A
v.
ANDHRA BANK FINANCIAL SERVICES LTD. & ORS

MAY 5, 2006

[Y.K. SABHARWAL, CJ.I., B.N. SRIKRISHNA AND B
P.P. NAOLEKAR, JJ.)

)
Special Courts (Trial ofOffences Relating to Transactions in Securities)
Act, J992: Section JO.

Securities-Andhra Bank Financial Services Ltd. (ABFSL) made an c
offer to Nuclear Power Corporation Ltd. (NPCL) for placing Rs. JOO
crores-Rs. 50 crores in 9% tax-free bonds and Rs. 50 crores in J 7% taxable
bonds issued by NPCL-NPCL issued a letter ofallotment (LOA) confirming
the allotment o/9% tax-free bonds ofthe nominal value ofRs. 50 crores (suit
bonds)-On the same day ABFSL sold the suit bonds to the Standard D
Chartered Bank (SCB) and issued a Cost Memo-Against the receipt of the
said Cost Memo SCB issued a Pay Order-ABFSL, in turn, issued a Banker's
Receipt (BR) acknowledging receipt of the sum from SCB towards the cost
I of the suit bonds and undertook to deliver the suit bonds of the value o/Rs.
50 crores, when ready, in exchange for the said BR duly discharged, and
assured that, in the meantime, the suit bonds would be held on account of E
SCB--SCB wrote to NPCL alleging that though in ABFSL 's letter, it was
stated that the original LOA was forwarded, SCB had found that only a
photocopy of the LOA had been enclosed--SCB also requested/or issue of
a duplicate allotment letter on the undertaking to return the original, if
received by it, and keeping NPCL indemnified against claims, if any, arising F
out of issue of the duplicate-On 29.5.J992, SCB requested ABFSL to
confirm to NPCL the fact of its having sold the suit bonds to SCB-On the
same day, ABFSL addressed a letter to NPCL (with a copy endorsed to SCB)
confirming having sold the suit bonds to SCB-ABFSL also confirmed that
it had no objection to NPCL issuing a duplicate LOA to SCB-Subsequently,
Canbank Mutual Fund (CMF) filled up a Transfer Deed and lodged it along G
with the original LOA with NPCL seeking transfer and registration of the
suit bonds in its name--SCB filed a suit before the High Court against
ABFSL, CMF and NPCL for a declaration that it was entitled to the suit
bonds andfor an order directing NPCL to register the suit bonds in the name
ofSCB and to hand over the same to SCB-CMF filed a Misc. Petition before H
I
2 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A the Company Law Board (CLB; under Section 111 of the Companies Act,
1956 seeking registration of the suit bonds in its name-The suit and the
petition were transferred to Special Court--Special Court held that CMF
was the owner of the suit bonds--Correctness of-Held: The suit was not
a mere declaratory suit; it must be regarded as a title suit--Notwithstanding
the market practice of delivery of securities accompanied by a signed blank
B transfer deed, the property in the securities can only be transferred if there
is bona fide purchase of the same for value-CMF has utterly failed to prove
its story that it had paid consideration for purchase of the suit bonds-CMF
acquired no right, whatsoever, to the suit bonds-The suit bonds always
remained the property of SCB irrespective of how they found their way into
c the hands of CMF--Companies Act, 1956, S. I 0-Transfer of Property Act,
1882, Ss. 130 to 137--EvidenceAct, 1872, S. l/4-Code ofCivil Procedure,
1908, S. 11--Benami Transactions (Prohibition) Act, 1988, Ss. 3 and 4(2)-
Specific Relief Act, 1963, S. 34.

In December 1991, Nuclear Power Corporation oflndia Ltd. (NPCL)
D issued bonds of two series - 9% tax-free bonds and 17% taxable bonds.
These bonds were permitted by the Controller of Capital Issues to be sold
to banks and financial institutions for private placement. Andhra Bank
Financial Services Ltd. (ABFSL) made an offer to NPCL for placing Rs.
I 00 crores - Rs. 50 crores in 9% tax-free bonds and Rs. 50 crores in 17%
E taxable bonds. NPCL wrote to ABFSL confirming the allotment of the
9% tax-free bonds and the 17% taxable bonds, as requested. NPCL
issued a letter of allotment (LOA) confirming the allotment of 9% tax-
free bonds of the nominal value of Rs. 50 crores (suit bonds). NPCL also
said that intimation would be given in due course as to when the allotment
letter duly discharged may be exchanged for bond certificates and that
F the interest payable on the suit bonds would accrue from the date of
allotment payable on half-yearly basis. On the same day ABFSL sold the
suit bonds to the appellant and in connection with the said sale issued its
Cost Memo indicating the particulars of the suit bonds and the cost at
which they were being sold. Against the receipt of the said Cost Memo
G the appellant issued a Pay Order. ABFSL, in turn, issued a Banker's
Receipt (BR) acknowledging receipt of the sum from the appellant towards
the cost of the suit bonds and undertook to deliver the suit bonds of the
value of Rs. 50 crores, when ready, in exchange for the said BR duly
discharged, and assured that, in the meantime, the suit bonds would be
held on account of the appellant. Thereafter, ABFSL addressed a letter
H
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. 3

' ;
to the appellant requiring the appellant to hand over its BR in lieu of the A
original LOA in respect of the suit bonds as well as the 17% NPCL
taxable bonds, which were said to have been enclosed with the said letter.

According to the appellant, in April/May 1992, when the securities
scam broke out, the officers of the appellant made an investigation of its
records and found that the appellant did not have in its possession the B
original LOA, but only a photocopy.
J
The appellant wrote to NPCL alleging that though in ABFSL's
letter, it was stated that the original LOA was forwarded, the appellant
had found that only a photocopy of the LOA had been enclosed. The C
appellant also requested for issue of a duplicate allotment letter on the
undertaking to return the original, if received by it, and keeping NPCL
indemnified against claims, if any, arising out of issue of the duplicate.
On 29.5.1992, the appellant requested ABFSL to confirm to NPCL the
fact of its having sold the suit bonds to the appellant. On the same day,
ABFSL addressed a letter to NPCL (with a copy endorsed to the appellant) D
confirming having sold the suit bonds to the appellant. ABFSL also
confirmed that it had no objection to NPCL issuing a duplicate LOA to
the appellant.

On 8.6.1992, one HPD who was acting as a broker in a large number
of securities transactions of banks and financial institutions was declared
E
a 'notified person' under the provisions of Section 3 of the Special Courts
(Trial of Offences Relating to Transactions in Securities) Act, 1992. The
appellant filed a First Information Report (FIR) against HPD and its own
employees alleging that, as a result of a conspiracy between HPD and its
own employees, several securities and monies had been misappropriated F
by HPD.

Subsequently, Canbank Mutual Fund (CMF) filled up a Transfer
Deed and lodged it along with the original LOA with NPCL seeking
transfer and registration of the suit bonds in its name. CMF wrote to
NPCL claiming that the suit bonds had been bought by it from ABFSL G
through a broker, HPD, and that the consideration therefor had been
paid by certain adjustments between itself and ABFSL. NPCL informed
CMF that it had received a request for issue of a duplicate LOA pertaining
to the suit bonds from the appellant, which was also claiming purchase
of the suit bonds from ABFSL. NPCL, by another letter, informed the H
4 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

A appellant that CMF had lodged the original LOA for registration claiming ' '

to have purchased the suit bonds from ABFSL.

The appellant filed a suit before the High Court against ABFSL,
CMF and NPCL for a declaration that it was entitled to the suit bonds

B
and for an order directing NPCL to register the suit bonds in the name •
of the appellant and to hand over the same to the appellant. The said suit
was transferred to the Special Court.

CMF filed a Misc. Petition before the Company Law Board (CLB)
under Sertion 111 of the Companies Act, 1956 seeking registration of the
C suit bonds in its name. The said petition was transferred to the Special
Court. The Special Court dismissed the suit filed by the appellant and
allowed the Misc. Petition filed by CMF. Hence the appeal.

The follo~ing question arose before the Court:

D Whether the Standard Chartered Bank or Canbank Mutual Fund
is the owner of 9% Nuclear Power Corporation Ltd. tax-free bonds and
entitled to be registered as such?

Allowi'1g the appeal, the Court

E HELD: I. It is clear that the appeal has been brought on the footing
that Standard Chartered Bank (SCB) had fully proved its title to the 9%
tax-free bonds of the nominal value of Rs. 50 crores (suit bonds) and that
the Special Court had erroneously held against SCB. Looked at from any
point of view, the suit was not a mere declaratory suit; it must be
F regarded as a title suit. [22-A[

2. Even if the petition filed under Section 111 of the Companies Act,
1956 was only for the limited relief of registering the petitioner-Canbank
Mutual Fund (CMF) as the holder of the suit bonds the contention of the
respondent cannot be accepted for two reasons. ln the first place, whatever
G might have been the limited jurisdiction of the Company Law Board
(CLB) under Section 111 of the Companies Act, 1956, while entertaining
the petition, the fact that the said petition was transferred to the Special
Court by an order of this Court needs to be reckoned with. The order
of th.is Court is specific and requires the trial of Special Court Suit along
H with Misc. Petition. The limitation of the jurisdiction of the CLB, if any,
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. 5

does not apply to the Special Court which is clothed with all the jurisdiction A
of a civil court. Secondly, merely by filing a petition under Section Ill
of the Companies Act, 1956 and by placing reliance on Section 108 of the
Companies Act, 1956 the petitioner-CMF cannot succeed. It would have
to go further and prove that it is validly a transferee of the suit bonds
if that question is put in issue. Thus, each of the two contesting parties,
i.e. SCB and CMF, would have to prove their rights and show how they B
are entitled to the suit bonds before any relief could be granted either
in the Suit or in the Misc. Petition. (24-B-E)
i
Mis. Ammonia Supplies Corporation (P) Ltd. v, Mis. Modern Plastic
Containers Pvt. Ltd., AIR (1998) SC 3153 and Manna/al Khetan v. Kedar C
Nath Khetan, AIR (1977) SC 536, referred to.

3. The Special Court was wrong on all the counts. On the question
of res judicata, the Special Court failed to notice that the doctrine of res
judicata is not merely a matter of procedure but a doctrine evolved by
the courts in larger public interest. What is enacted in Section 11 of the D
Code of Civil Procedure, I 908 is not the fountainhead of the doctrine,
but merely the statutory recognition of the doctrine, which rests on
public policy. [26-G, H, 27-A]

Canara Bankv. Standard Chartered Bank, (2002] 10 SCC 697; Daryao
v. State ofUP., (1962] 1 SCR 574; Guda Vijayalakshmiv. Guda Ramachandra
E
Sekhara Sastry, (1981] 2 SCC 646 and Hope Plantations Ltd. v. Taluk Land
Board, Peermade, (1999] 5 SCC 590, relied on.

4. Section 13 of the Special Courts (Trial of Offences Relating to
Transactions in Securities) Act, 1992 does not override the doctrine of F
res judicata. The provision of the Act was certainly not intended to
abrogate all the established principles of law, unless they were directly
in conflict with the express provisions of the Act itself. There is nothing
1
in the Act which is inconsistent with the doctrine of res judicata, per se,
as seems to have been assumed by the Special Court. (27-F, G, 28-A]
G
5. In the absence of proper explanation it was not open to the
Special Court to make inferences or assumptions with regard to terms
used in the documents, for example, SCB's securities Ledger in relation
to the suit bonds, which pertain to the sale and purchase of the suit
bonds with different counter-parties. This document as such does not H
6 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A contain the description 'portfolio', but the said appellation has been
given to it by the Special Court on its own. The Special Court has '
observed thereupon: "Therefore, all such transactions were entered
into by the bank on behalf of one HPD, who was acting as a broker.
Therefore, they were transactions of HPD. This is amply illustrated by
Exhibit-II. A portfolio represents stock held by SCB on behalf of HPD.
B HPD was entitled to enter into buy transactions and sale transactions
in respect of securities coming under that portfolio. The portfolio was
built up by SCB by purchasing securities at the instance of HPD. This
is also called as building up of position. The suit contract comes under
Exhibit-I I. By the suit contract, the Letter of Allotment (LOA) came
c within the portfolio of HPD. He was allowed to deal with the LOA
under the portfolio". This inference is not readily available ex facie
from the document nor was there any other evidence given by any
witness explaining the document, suggesting it. [28-H, 29-A-D)

6. Further, the word "loan' used in the Security Ledger (Exhibit-
D 11) was seized upon by the Special Court to draw an unwarranted
inference. The Special Court has held that this term shows "lending of
scrip to HPD" and has then gone on to hold as follows: "this word has
to be read while construing the entries in Exhibit-ti beginning from
27.2.1992. The word 'loan" must be read with the column "Book Value"
and the column "Profit and Loss" and "Balance". That, last column
E "Balance" represents HPD's outstanding to SCB." There is no warrant,
whatsoever, for such an explanation to this document as no witness has
said so. Further, the word 'loan' appears to have been used in the Bank
Receipt (BR) issued by Andhra Bank Financial Services Ltd. (ABFSL)
to SCB in respect of the suit bonds. There was no justification for giving
an interpretation to the word 'loan' used in any of the documents without
F any explanation by a witness. [29-0-F]

7. The Special Court also makes a finding that the word 'Direct'
used in SCB's ledger showing transaction details ofSCB from April 1991
to May 1992 (Exhibit-7) suggests that such transactions were all under
the 15% arrangement. This again appears to be an inference which has
G
been drawn by the Special Court without any supporting evidence thereto.
In the replies to the interrogatories as well as the evidence of the witnesses
no one has asserted that all transactions described as 'direct' were
necessarily covered by the 15% arrangement. Although, the reply to
Question no. 43 of the interrogatories, in Suit No. 14/94, di1 suggest to
H the contrary, the said reply not having t>een tendered in evidence and
STANDARD CHARTEREO BANK v. ANDHRA BANK FINANCIAL SER VICES LTD. 7

taken on record does not form part of the evidence before the Special A
Court. The Special Court is, therefore, not justified in drawing this
conclusion for which there was no acceptable evidence. [29-F, G, 30-A]

P.C. Purushothama Reddiar v. S. Perumal, (1972) l SCC 9 and Arulmigu
Viswesaraswami & V.P. Temple, [2003) 8 SCC 752, referred to.
B
8. While it may be true that the Special Court has been given a
certain amount of latitude in the matter of procedure, it surely cannot
i fly away from established legal principles while deciding the cases before
it. As to what inference arises from a document, is always a matter of
evidence unless the document is self-explanatory. None of the documents
placed on record during the trial were self-explanatory; nor were they c
explained by any competent witness on either side. In the absence of any
such explanation it was not open to the Special Court to come up with
its own explanations and decide the fate of the Suit on the basis of its
inference based on such assumed explanations. In fact, these inferences
run contrary to the oral evidence given by PW -1 in relation to the D
transaction of 26.2.1992. [30-D-F]

9.1. The Special Court has also adversely commented on the conduct
of SCB in not leading evidence to prove what the 15% arrangement was.
A party could not be called upon to lead evidence with regard to an issue
which was no part of its case. The 15% arrangement was brought on E
record at the instance of CMF and the burden, if any, of proving its
details lay on CMF. Although, a number of documents were produced
on record as called for by CMF, there was no obligation on SCB to
explain any of them. [30-G, 31-A]
F
9.2. There was, therefore, transfer of the property in the suit bonds
to SCB and the evidence on record is sufficient to arrive at such a
conclusion. It was wholly unnecessary for SCB to go further and prove
how the BR was discharged and how the LOA went out of its possession,
which were the facts emphasized on behalf of CMF. Not was it necessary
for SCB to lead evidence as to how HPD had intercepted the original G
LOA, when and in what manner. [42-B-C)

Hirata! v. Badkulal, AIR (1953) SC 225; Gopal Krishnaji Ketkar v.
Mohamed Haji Latif, AIR (1968) SC 1413; S.P. Chengalvaraya .Naidu-v.
Jagannath, AIR (1994) SC 853; Citi Bank NA. v. Standard Chartered Bank, H
8 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

A AIR (2003) SC 4630; Mt. Bi/as Kunwar v. Desraj Ranjit Singh, AIR (1915) ..
PC 96; Rmrati Kuer v. Dwarika Prasad Singh, AIR (1967) SC 1134; Smt.
Indira Kaur v. Shri Shea Lal Kapoor, AIR (1988) SC 1074; Murugesam
Pillai v. Gnana Sambandha Pandara Sannidhi, AIR (1917) PC 6; Chow
Yoong Hvng v. Chvong Fah Rubber Manufactory, (1962) AC 209; Mercantile
Bank of India ltd v. Central Bank of India ltd.. AIR (1938) PC 52; New
B Marine Coal Co. (Bengal) Pvt. ltd v. Union of India, AIR (1964) SC 152;
Vasudev Ramchandra She/at v. Pran/al Jayanand Thaker, AIR (1974) SC
1728; l.l.C. ofIndia v. Escorts Ltd, AIR (1986) SC 1370; Nagindas Ramdas
v. Da/patram lccharam alias Brijram, AIR (1974) SC 471; Thru John
Subramhanyam v. Returning Officer, AIR (1977) SC 1724; Bharat Singh v.
c Mst. Bhagirathi, AIR (1966) SC 405; Siddik Mohamed Shah v. Mt. Saran,
AIR (1930) PC 57(1); Bhagatsingh v. Jaswant Singh. AIR (1966) SC 1861;
Shri i'enkataramana Devarzi v. State of Mysore, AIR (1958) SC 255;
Controller of Estate Duty v. Gvdavari Bai, (1986( 2 SCC 264 and Bhagwati
Prasad v. Chandramaul. AIR (1966) SC 735, referred to.

D Halsbury's laws of England: Vol. 15, p. 243, Para 451 and 453,
referred to.

10.1. A large portion of the impugned judgment is devoted to an
analysis of the Securities Ledger (Exhibit-11) and raising inference
thereupon. There is no doubt that Exhibit-11 is a securities ledger
E
maintained by SCB in respect of the suit bonds. Ex facie, the Securities
Ledger shows the date on which the transaction took place, the
counterparty to the transaction, whether the transaction was a sale or
purchase, face value of the transaction, rate of the transaction, book
value, interest paid/received, profit/loss of the transaction and the balance.
F The document as such does not give rise to an inference that in any of
the transactions HPD had become the owner of the suit bonds. The
Special Court, on account of a misreading of the evidence pertaining to
the 15% arrangement, drew a conclusion from the Exhibit-11 that HPD
became the owner of the suit bonds right from 26.2.1992 and thereafter
all the transactions were those of HPD, the losses or gains being credited
G
to the accountofHPD. The evidence on record as to the 15% arrangement
is already seen. No part of that evidence can legitimately give rise to the
inference that in respect of securities transacted under the said
arrangement, any person other than SCB or the counterparty became
the owner of these securities. The suit bonds were purchased by SCB
H legitimately on 26.2.1992 by payment of consideration to ABFSL, which
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. 9

fact is even accepted by the Special Court. However, on an analysis of A
certain documents on record, the Special Court has come to the conclusion
that on 9.5.1992 the suit bonds were sold by SCB to HPD. The transaction
dated 9.5.1992 thus becomes crucial and has to be scrutinized to see if
this inference is correct. (44-B-FJ

10.2. While the Special Court's inferences are based upon its B
understanding of what the 15% arrangement was and its analysis of
Exhibit-11, it totally fails to give any reason as to why the evidence of
a witness from ABFSL about there being no such transaction on 9.5,1992,
backed by the purchase register of ABFSL, should be rejected. In the face
of the positive evidence of ABFSL that no such transactions were there,
there was no justification for not accepting the stand of SCB that entry
c
dated 9.5.1992 pertaining to the suit bonds was a sham entry intended
to introduce the money into the books of SCB to cover a wide gap.
(45-G, 46-A]

11. Whatever might have been the conjectures on the part of the
D
Special Court, whatever might have been the suspicion generated on
account of sham entries made by one or the other party, when it came
to the crux of the issue, the Special Court has correctly answered it and
negatived the case of CMF that SCB lost title of the suit bonds because
the suit bonds were sold in consideration of purchase of Can triple Units.
[47-G, 48-A] E
12.1. Notwithstanding the market practice of delivery of securities
accompanied by a signed blank transfer deed, the property in the securities
can only be transferred if there is bona fide purchase of the same for
value. The crucial question in the present case is: did CMF purchase the
suit bonds for value from the antecedent title-holder? (53-F] F
12.2. When the matter was first tried by the Special Court, CMF
categorically admitted that there was no evidence by which it could be
established that CMF had paid consideration for acquisition of the bonds.
It is true that this judgment was subsequently set aside by this Court and
the matter was remanded for trial along with the Misc. Petition. But this G
is a significant fact which the Special Court could not have overlooked
in appreciation of the evidence. [54-A, BJ

12.3. Considering the evidence as a whole, it appears that the initial
stand taken by CMF in the first round of the litigation, that there was
H
JO SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A no credible evidence on which payment of consideration by CMF could
be proved, was fully justified. The attempt of CMF on picking up and
putting forward some of the documents, out of the several transactions
entered into by them to patch up the story of consideration has miserably
failed. There was no cause for being charitable to CMF by saying that
they could prove only a part of the consideration, ergo, rest of the
B transactions must be deemed to have proved. Every one of the arguments
put forward by SCB to impugn the story of CMF that it had paid the
consideration is ju~tified and the Special Court was wrong in rejecting
the arguments of SCB on this count. It is, therefore, held that CMF has
utterly failed to prove its story that it had paid consideration for purchase
C of the suit bonds on 27.2.1992. (57-B-D]

Jagdish Narain v. Nawab Said Ahmed Khan, AIR 33 (1946) PC 59;
Moran Mar Basselios Catholicos v. Most Rev. Mar Poulose Athanasius, AIR
(1954) SC 526; Brahma Nand Puri v. Mathra Puri, AIR (1965) SC 1506;
L.J. Leach and Co. Ltd. v. Messrs. Jardine Skinner and Co., AIR (1957) SC
D 357; Chuharmal Takarmal Mohnani v. Commissioner of Income Tax, AIR
(1988) SC 1384; Sita Ram Bhau Patil v. Ramchandra Nago Patil, (197712
SCC 49; France v. Clark (1884] Vol. 26 Ch.D. 257; V.S. Venkata Subbiah
Chetty v. A. Subha Naidu, AIR (1916) Mad 242; Govt. of the United States
of Travancore and Cochin v. Bank of Cochin Ltd, AIR (1954) Tra-Co 243
(FB), Fazal D. Allana v. Mangaldas M Pakvasa, AIR (1922) Born. 303 and
E Vasudev Ramchnadra She/at v. Pranlal Jayanand Thaker, AIR 1974 SC
1728, referred to.

Halsbury's Laws ofEngland: 4th Edn. Vol. 6 Para 6, 8(3) and 73 and
Vol. 35 Para 1204, referred to.

F 13. In these circumstances, the evidence on record does not prove
that HPD became the owner of the suit bonds or that CMF legitimately
acquired the suit bonds from HPD or any other person by paying bona
fide purchase value for them. Consequently, it must be held that CMF
acquired no right, whatsoever, to the suit bonds. The suit bonds always
remained the property of SCB irrespective of how they found their way
G
into the hands of CMF. [58-C, DJ

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2275 of
2002.

H From the Judgment and Order dated 17.1.2002 of the Special Court at
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 11

Bombay in Suit No. 11 of 1996. A
With C.A. No. 2276 of 2002.

Ram Jethmalani, Aspi Chinoy, Sr. Advs., Tushad K. Cooper, Mahesh
Agarwal, P.R. Mala, Manu Krishnan, Shilpa Singh, E.C. Agarwala and Rishi
Agarwal; Advs., with them for the Appellant. B
Rohit Kapadia, Sr. Adv, Shaunak Thacker, Pradeep Sancheti, Ms.
Sunita Dutt, Nilesh Parekh, Rajiv Mehta, Kumar Desai, Ashwin Pandya,
Nandini Gore, Ms. Manik Karanjawala, P.H. Parekh, Ms. Sweety Manchanda,
Advs., with him for the Respondents. C

The Judgment of the Court was delivered by

SRIKRISHNA, J.

These two appeals under Section l 0 of the Special Courts (Trial of D
Offences Relating to Transactions in Securities) Act, 1992 (hereinafter
referred to as "the Act") are against the judgments of the Special Court
constituted under Section 5 of the Act, by which judgments the Special Court
dismissed Special Court Suit No. 11/96 and allowed Misc. Petition No. 81/
95, which had been transferred to it. As a result of the said two judgments
of the Special Court, the claim made by the appellant-Standard Chartered E
Bank (hereinafter referred to as "SCB") was negatived in dismissed Suit No.
11/96, and the application made by Canara Bank as principal trustee of
Canbank Mutual Fund (hereinafter referred to as "CMF") for a direction to
Nuclear Power Corporation of India Ltd. (hereinafter referred to as "NPCL")
to register CMF as the owner of certain bonds and to pay the interest payable F
thereon was allowed.

FACTS:

Sometime in December 1991, NPCL issued bonds of two series - 9%
tax free bonds and 17% taxable bonds. These bonds were permitted by the G
Controller of Capital Issues to be sold to banks and financial institutions for
private placement. On 24.2.1992 Andhra Bank Financial Services Ltd.
(hereinafter referred to as "ABFSL") made an offer to NPCL for placing Rs.
I00 crores - Rs. 50 crores in 9% tax free bonds and Rs. 50 crores in 17%
taxable bonds. On 26.2.1992 NPCL wrote to ABFSL confirming the H
12 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

A allotment of the 9% tax fret: bonds and the 17% taxable bonds, as requested.
On 26.2.1992, NPCL issued a letter of allotment (hereinafter referred to as
the "'LOA") confirming the allotment of 9% tax free bonds of the nominal
value of Rs. 50 crores (hereinafter referred to as the '"suit bonds"). NPCL
also said that intimation would be given in due course as to when the
allotment letter C:uly discharged may be exchanged for bond certificates, and
B that the interest payable on the suit bonds would accrue from the date of
allotment, payable on half yearly basis. On the same day ABFSL sold the
suit bonds to SCB and in connection with the said sale issued its Cost Memo
No. 057 dated 26.2.1992 indicating the particulars of the suit bonds and the
cost at which they were being sold i.e. @ 85 .05 at the total cost of Rs.
c 42,52,50,000. Against the receipt of the said Cost Memo No. 057 from
ABFSL, SCB issued a Pay Order No. 246408 dated 26.2.1992 for the sum
of Rs. 42,52,50,000. ABFSL, in tum, issued a Banker's Receipt (hereinafter
referred to as "BR") No. 23 728 acknowledging receipt of the sum of Rs.
42,52,50,000 from SCB towards the cost of the suit bonds and undertook
to deliver the suit bonds of the value of Rs. 50 crores, when ready, in
D exchange for the said BR duly discharged, and assured that, in the meantime,
the suit bonds would be held on account of SCB. On 26/27 .2.1992, ABFSL
addressed a letter to SCB requiring SCB to hand over its BR No. 23728 in
lieu of the original LOA in respect of the suit bonds as well as the 17% NPCL
taxable bonds, which were said to have been enclosed with the said letter.
E
According to SCB, in April/May 1992, when the securities scam broke
out, the officers of SCB made an investigation of its records and found that
SCB did not have in its possession the original LOA, but only a photocopy.

On 20.5.1992, SCB wrote to NPCL alleging that though in ABFSL's
F letter dated 26.2.1992, it was stated that the original LOA was forwarded,
SCB had found that only a photocopy of the LOA had been enclosed. A copy
of ABFSL's concerned letter was also enclosed. SCB further stated that the
original LOA purportedly sent by ABFSL was not available, that a note may
be made in NPCL's records that the original LOA was missing and,
.::-
therefore. due caution should be exercised by NPCL. SCB also requested for
G issue of a duplicate allotment letter on the undertaking to return the original,
if received by it. and keepmg NPCL indemmfied against claims, if any,
arising out of issue of the duplicate. On 295.1992, SCB requested ABFSL
to confirm to NPCL the fact of having sold the suit bonds to SCB. On the
same date, ABFSL addressed a letter to NPCL (with a copy endorsed to
H SCB), confirming having sold the suit bonds to SCB on 26.2.1992. They also
STANDARD CHARTERED BANK v. ANDHRA BANK FlNANCIAL SERVICES LTD. [SRJKRISHNA, J.] 13

confirmed that they had no objection to NPCL issuing a duplicate LOA to A
SCB.

On 8.6.1992 one Hiten P. Dalal (hereinafter referred to as "HPD"), who
was acting as a broker in a large number of securities transactions of banks
and financial institutions, was declared a 'notified person' under the
provisions of Section 3 of the Act. On 20.6.1992 SCB filed a First B
Information Report ("FIR") against HPD and its own employees alleging
that, as a result of a conspiracy b.etween HPD and its own employees, several
securities and monies had been misappropriated by HPD.

On 14.7.1992 CMF filled up a Transfer Deed dated 13.7.1992 and
lodged it along with the original LOA with NPCL seeking transfer and
c
registration of the suit bonds in its name. On 3.8.1992, NPCL wrote to SCB
that the matter with regard to issuance of duplicate LOA of the suit bonds
was being considered in consultation with its solicitors. On 17.8.1992, CMF
wrote to NPCL claiming that the suit bonds had been bought on 27.2.1992
from ABFSL through a broker, HPD, and that the consideration therefor had D
been paid by certain adjustments between itself and ABFSL. CMF claimed
that it was the legitimate holder of the suit bonds as it had received them
against valid consideration. On 8.9.1992, NPCL infonned CMF that they
had received a request for issue of a duplicate LOA pertaining to the suit
bonds from SCB, which was also claiming purchase of the suit bonds from
ABFSL. On 8.9.1992 by another letter, NPCL informed SCB that CMF had
E
lodged the original LOA for registration claiming to have purchased the suit
bonds from ABFSL on 27.2.1992. On 30.9.1992 NPCL asked ABFSL to
confirm if it had sold the suit bonds to SCB as NPCL had received the LOA
and the transfer deed in relation to the suit bonds duly endorsed by ABFSL
in favour of CMF. On 30.9.1992 NPCL informed CMF that as early as on F
20.5.1992 it had received a letter from SCB conveying that the suit bonds
had been transferred in SCB's favour by ABFSL and enclosing a letter of
ABFSL to evidence the transaction. They also referred to another letter of
29.5.1992 by ABFSL confirming that ABFSL had sold the suit bonds to SCB
on 26.2.1992 and that it had no objection to issuing/transferring the LOA/
bonds to SCB. On 9.10.1992 SCB wrote to NPCL stating that as the suit
G
bonds had been issued to ABFSL, who had confirmed selling the same to
SCB, the LOA from CMF may be disregarded. By another letter of
15.10.1992 from ABFSL to NPCL, ABFSL once again confirmed the selling
of the suit bonds to SCB and stated that as per market practice the suit bonds
had been sold with blank transfer deeds to SCB. On 6.11.1992 NPCL H
14 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A informed SCB that, since there was a dispute over the ownership of the suit
bonds between SCB and CMF, the matter should be resolved between SCB
and CMF, only after which necessary action would be taken by it.

On 27 .11.1992 SCB filed Suit No. 3808/92 on the Original Side of the
Bombay High Court against ABFSL, CMF and NPCL for a declaration that
B it was entitled to the suit bonds and for an order directing NPCL to register
the suit bonds in the name of SCB and to hand over the same to SCB. A
further declaration was sought that CMF had no right, title and interest in
the suit bonds; in the alternative, SCB sought refund from ABFSL. The said
suit came to be transferred to the Special Court on 25.9.1996 and was re-
C numbered as Special Court Suit No. 11 of 1996.

On 27 .11.1992 CMF filed a petition before the Company Law Board
(hereinafter referred to as "CLB") under Section 111 of the Companies Act,
1956 seeking registration of the suit bonds in its name. The original
respondents to the petition were NPCL, ABFSL and HPD. SCB was
D subsequently joined as a party respondent. In this petition, CMF alleged that
it had purchased the suit bonds from ABFSL on 27 .2.1992 through HPD,
who, according to CMF, had acted as a broker/authorised agent of ABFSL
in the transaction and that the payment of the price of the suit bonds to
ABFSL was made by netting of the amounts of three other transactions
between CMF and ABFSL made on the same day (i.e. 27.2.1992).
E
On 27.2.1993 NPCL contested the petition by denying the so called
transaction alleged by CMF and stating that the matter was sub Judice since
a suit was already filed in the Bombay High Court with regard to the alleged
suit bonds. ABFSL also filed a reply to the petition denying that it had sold
the suit bonds to CMF and affirming their sale to SCB on 26.2.1992. SCB
F in its reply to the petition pointed out that it had purchased the suit bonds
from ABFSL after paying consideration and that ABFSL had also confirmed
that there had been no sale or delivery of the suit bonds to CMF. SCB alleged
that HPD had wrongly and fraudulently diverted the suit bonds to CMF. On
. .

16.3 .1993 the CLB made an order directing all the parties to disclose the role
G of HPD in the transaction.

On 6.3.1995 the petition by CMF before the CLB was transferred to
the Special Court and re-numbered as Misc. Petition No. 81/95. HPD had
filed no affidavit in reply to the petition when the matter was before the CLB.

H On 14.6.1996, after the transfer of the petition to the Special Court,
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] J5

HPD filed an affidavit in reply in Misc. Petition No. 81195 stipulating that A
the contents thereof and the documents referred to could not and ought not
to be referred to and relied upon or used against HPD in any proceedings
as he could not be compelled to be a witness against himself in any court
of law, whether civil or criminal. According to HPD's version, SCB had
'lent' the suit bonds and the 17% NPCL bonds to him on 27.2.1992; that
he had agreed to return the same with interest; that on 9.5.1992 he had B
purchased the suit bonds from SCB and adjusted the price payable by him
to SCB against a sale by him of Cantriple Units and further that, he had sold
and delivered the suit bonds to CMF on 27.2.1992.

On 25.6.1996, SCB replied to HPD's affidavit and denied that it had C
any transaction with HPD in respect of the suit bonds on 27.2.1992 and
denied that the suit bonds were sold by SCB to HPD on 9.5.1992, or that
it had purchased Cantriple Units from HPD. SCB also pointed out several
inconsistencies and contradictions in the stand taken by HPD in his affidavit.

On 27.11.1996, the Special Court dismissed Misc. Petition No. 81/95 D
by holding that CMF had admitted through its counsel that it was not in a
position to show that it had paid any consideration for the suit bonds to
ABFSL, and, as no consideration was paid by CMF either to ABFSL or to
SCB, CMF could claim no title to the suit bonds, even assuming that HPD
had acted as a mercantile agent and appeared to have obtained possession
of the LOA through/from SCB. In view of this, the Special Court concluded
E
that CMF could claim no right, title and interest in the suit bonds. However,
in view of the fact that SCB had already filed Suit No. 11/96, it was held
that SCB's title to the suit bonds could be decided in that suit.

On 23.12.1996, CMF preferred an appeal to this Court but failed to F
obtain any interim relief except a direction from this Court that the Officer
on Special Duty, who was in possession of the suit bonds, would not part
with the suit bonds without notice to CMF and that the decision in Suit No.
11/96 would be subject to the decision in the appeal.

On 10.1.1997, HPD took out Chamber Summons 1/97 in Suit No. 11/ G
96 for being joined as a party. The said Chamber Summons was opposed
by SCB and by an order dated 20.3.1997, the Chamber Summons was
dismissed by the Special Court taking the view that HPD was at liberty to
adopt appropriate substantive proceedings regarding his alleged claim of
having purchased the suit bonds from SCB on 9.5.1992. H
16 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A On 30.9.1997, SCB applied for withdrawal of the Suit against CMF.
This application was allowed. However, the Special Court took the view that
CMF was a necessary party to the Suit in spite of its earlier order holding
that CMF could claim no right, title or interest in the suit bonds and by an
order made on 30.9.1997' 1.10.1997 the Suit was dismissed on the ground
of non-joinder of CMF which was a necessary party. SCB appealed
B therefrom to this Court.

Thus, both SCB and CMF, came in appeal to this Court against the
orders made by the Special Court in Misc. Petition No. 81195 as also of
dismissal of Suit No. 11196. By the judgment and order dated 21.4.1998
c made in Civil Appeal No. 7 of 1997 etc., this Court allowed both the appeals
filed by SCB and CMF and remitted the matter to the Special Court for being
tried de nova. Accordingly, both, the Suit and the Misc. Petition came to be
tried again by the Special Court. By the judgment dated 17. \.2002, Special
Court Suit No. 1\/96 was dismissed and Misc. Petition No. 81/95 was
allowed. Being aggrieved, SCB is in appeal against both the judgments.
D Since the impugned judgments arise out of interconnected facts, it would be
convenient to dispose of both the appeals by a common judgment.

Since the judgment in Misc. Petition No. 81195 merely follows the
judgment in Special Court Suit No. 11/96, it would be sufficient to deal with
the judgment in Special Court Suit No. 11 /96, calling it the 'impugned
E judgment' hereinafter.

Issues:

The Special Court raised the following issues in the impugned judgment
F and answered them as under:

Issues Answers

I. Does the Plaint not disclose In the affirmative i.e. in favour of CMF '
any cause of action against the and against SCB
G Defendant No.2 ?

2.Whether the plaintiffs were In the negative i.e. in favour ofCMF and
entitled to and continue to be against SCB
entitled to the suit bonds as
H alleged in para 8 of the Plaint ?
...
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] J7

2A. Whether the Plaintiffs prove the In the negative i.e. against SCB and A
circumstances in which Original BR in favour of CMF.
was taken away from them as alleged
in para (8) of the Plaint ?
3. Whether the alleged transaction In the affirmative i.e. in favour of
dated 26/2/92 was a transaction of CMF and against SCB
B
Hiten P. Dalal as alleged in para I (d)
and 8 of the Written Statement ?
4. Whether the alleged transaction In the affirmative i.e. in favour of
dated 26/2/1992 was under an CMF and against SCB.
arrangement with the Plaintiffs as
alleged in paras I (d) ,7, 8 and 9 of the
c
Written Statement ?
5. Whether the Plaintiffs are estopped In the affirmative i.e. in favour of
from making any claim as alleged in CMF and against SCB.
para I read with para 22 and 29 of the
Written Statement? D
6. Whether on 9th May 1992 the This issue is divisible in to three parts
Plaintiffs purchased Cantriple Units (i) CMF has proved that SCB has
of the face value of Rs.45.50 crores purchased cantriple units of the face
for Rs.266.18 crores (approx.) and value of Rs. 45.50 crores on 9/5/
against which the Plaintiffs sold and 1992. To that extent, issue is answered E
adjusted various securities including in the affirmative (ii) However, CMF
the suit bonds of the face value of Rs. has not proved that the said purchase
50 crores and whether the Plaintiffs was against sale of the suit bonds on
have applied for and got the said 91511992. To that extent the sub-issue
Cantriple units of face value of is answered in the negative, (iii) CMF
Rs.45.50 crores transferred in their has proved that in January, 1993 SCB F
name in January, 1993 disclosing a applied for and have got the said
sale consideration of about Rs.266.18 cantriple units of the face value of Rs.
" crores as stated in para 14 and 15 of 45.50 crores transferred in their name.
the Written Statement ? Therefore, to that extent, the sub-
issue is answered in the affirmative. G
7. Whether the Defendant No.2. In the affirmative i.e. in favour of
purchased the bonds and received CMF and against SCB.
delivery thereof along with Transfer
Deed as alleged in para 22 and 29 of
the Written Statement ? H
18 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A 8. Whether the plaintiffs deliberately In the affinnative i.e. in favour of
by their act and or omission or CMF and against SCB.
negligence put Defendant No. I or
Hite! P. Dalal in a position to deal
with the LOA and the Transfer Deed
as they liked as alleged in para 21 and
B 29 of the Written Statement ?

9. Whether Hiten P. Dalal was In the affinnative i.e. in favour of
authorised to deal with and/or deemed CMF and against SCB.
to be authorised to deal with the
c Bonds as alleged in paras 22 and 29
of the Written Statement '? -
I0. Whether the Plaintiff is entitled to As per final Order.
any reliefs and if so what

D ISSUES BETWEEN PLAINTIFF (SCB) AND DEFENDANT NO. 3 (NPCL)

ISSUES ANSWERS

I. Whether this Court has jurisdiction In the affinnative.
to entertain and try this Suit ?
E
2. Whether the Plaintiffs are entitled Answer for Issue No. 2 and 3. Issues
to and/or are the owners of the said between SCB & NPCL were framed
securities without having received the on 2/7 /I 997 i.e. after Judgment and
original Letter of Allotment ? Order of Variava, J. (as he then was)
F dismissing Misc. Petition No. 8 I of
3. Whether these Defendants are 1995 on 27/I I/I 996 (whichjµdgment
entitled to a lien on the said Bonds for has been subsequently overruled by
securing the repayment of the deposit the Apex Court). As stated above, at
placed by them with the I st one point of time, there were disputes
Defnednats (sic) '? between plaintiff and NPCL which
G disputes do not survive in view of
the subsequent stand taken by SCB
before this Court. Therefore issues
nos. 2 and 3 do not arise for
determination.
H
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 19

4. Whether the Plaintiffs prove that In the negative. A
these Defendants are bound to register
any Bonds in the name of the Plaintiffs
or to issue the said Bonds and relevant
interest warrants to the Plaintiffs ?

5. What Order? As per final Order.
B

The issues framed in Misc. Petition No. 81/95 with the answers are as
follows:

- ISSUES

1. Whether the Petitioners are bonafide
FINDINGS

In the affirmative as answered in
c
purchasers of value without notice of the Judgment in suit No. 11 of 1996
9% NPCL Bonds from Respondent i.e. in favour of the Petitioners and
No. 3 for consideration paid to against SCB.
Respondent No. 3 as set out in the
D
affidavit ofS. Ramaraj dated July 12,
1993 ?

2. Whether Respondent No. 4 are In the negative i.e. against SCB and
entitled to object to registering transfer in favour of the Petitioners. E
of 9% NPCL Bonds in favour of the
Petitioners ?

3. Whether the Petitioners are entitled In the affirmative i.e. in favour of
to have the suit LOA (for 9% NPCL the Petitioners and against SCB.
F
Bonds f. v. 50 Crs.) transferred to their
name ?

4. Whether there was collusion Does not arise.
between Respondents Nos. 2, 3 and/or
4 as alleged by the Petitioners in the G
affidavit ofM. Nayak dated April 10,
1993 ?

5. What Orders on the Petition? As per final order.
H
20 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A The core issue in both proceedings pertains to 9% NPCL Tax free
bonds and whether SCB or CMF is the owner of such bonds and entitled
to be registered as such.

B
fhe Special Court held that SCB had proved that it had purchased the
suit bonds from ABFSL against payment of Rs. 42,52,50,000, but it
dismissed SCB's suit and allowed CMF's petition for the following reasons:
-
(I) that under the existing '15% Arrangement' between SCB and HPD,
SCB had purchased the suit bonds on behalf of HPD;

(2) that HPD was accordingly entitled to deal with the bonds, and
c
(3) that HPD had delivered and sold the bonds to CMF; and thus, CMF
is actually the owner.

Whether these findings are justified on facts and in law has been argued
before us by learned senior counsel appearing for the parties with great
D perseverance, ingenuity and erudition.

l. Nature of the Suit and the Proceedings in the Misc. Petition:

The Special Court has taken the view that the suit filed by SCB is
•
E basically a title suit. Originally in the suit, a money decree in the alternative
had been prayed for against ABFSL, but the monetary relief was subsequently
given up. following upon this, the Special Court held that even if CMF
failed to prove the payment of consideration, SCB could not succeed in its
5Uit as it was a title suit. In the same vein, the Special Court held that the
Suit had to fail because it was a title suit and HPD was entitled to deal with
F the suit bonds in his own title. And since the title suit failed, SCB could not
prevent NPCL from transferring the bonds in favour of CMF. Finally, the
Special Court concluded on this issue, that non-payment of consideration by
CMF, as submitted by SCB, could only be questioned by HPD and not by
SCB. The Special Court also held that as the Suit was a title suit, SCB was
G required to prove its title and could not succeed on the basis of the faults
in the evidence of the defendant-CMF.

Mr. Jethmalani, learned counsel for the appellant, contended that the
Special Court erred in taking the view that Suit No. 11196 was a title suit
in which SCB failed to have its title established. He submitted that on proper
H analysis, the suit of SCB was in the nature of a declaratory suit falling within
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. (SRIKRISHNA, I.] 21

the ambit of Section 34 of the Specific Relief Act, 1963, which corresponds A
r+--
to Section 42 of the Specific Relief Act, 1877 (hereinafter referred to as the
"old Act"). He placed particular emphasis on illustration (c) appended to
Section 42 of the old Act and contended that a declaratory suit under Section
42 of the old Act, or Section 34 of the present Specific Relief Act, need not
be one for declaring the title of the plaintiff, but may be one for declaring
any other legal character of the plaintiff. It is difficult to accept this B
contention of Mr. Jethmalani. As rightly pointed out by Mr. Kapadia, learned
counsel for CMF, SCB appears to have all along claimed that its suit was
a title suit. In the first place, the prayer clauses in Special Court Suit No.
11 /96 read as under:

"(a) For a declaration that the plaintiffs are fully entitled to 9%
c
NPCL Tax free 'F' series Bonds (fifth Issue) of the Third Defendants
more particularly described in Exhibit 'G' hereto and that the Third
Defendant are bound and liable to register and (sic) said Bonds in
the Plaintiffs' name and to issue and deliver the said Bonds to the
Plaintiffs along with interest warrants in respect thereto. D
(b) For a declaration that the second defendants have no right, title
and interest whatsoever, in relation to the said Bonds, more
particularly described in Exhibit 'G' hereto and that the Second
defendants are not bonafide purchasers of the said Bonds for value."
E
The substantive prayers are for a declaration that the plaintiffs "are fully
entitled" to the suit bonds and certain reliefs which are founded upon this
declaration. A suit for such a declaration would certainly be a title suit so
far as the suit bonds are concerned.
F
Further, even Grounds A28 and A30 of the present Civil Appeal No.
2275/02 by SCB read:

~
"(A28) The learned Judge erred in failing to appreciate that SCB
having proved its title on 26th February, 1992 its said title would
prevail against the whole world until a superior title of any party G
was established.

(A30) The learned Judge erred in failing to appreciate that thereby
SCB had established its prior title to the Suit Bonds and had a better
title thereto then (sic) CMF."
H
22 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A Thus, it is clear that the appeal has been brought on the footing that
SCB had fully proved its title to the suit bonds and that the Special Court
had erroneously held against SCB. Looked at from any point of view, we
are not satisfied that the Suit was a mere declaratory suit, it must be regarded
as a title suit.

B We shall now tum to the nature of the proceedings in Misc. Petition •
No. 81/95. This petition was presented under Section 111 of the Companies
Act, 1956. Section 111 (I) provides for the power of refusal by a company
to register the transfer of debentures to a transferee. The transferor or the
transferee has a right of appeal to the Tribunal (then, the CLB) under sub-
c section (2) of Section 111. The nature of proceedings under Section 111 are
slightly different from a title suit, although, sub-section (7) of Section 111
gives to the Tribunal the jurisdiction to decide any question relating to the
title of any person who is a party to the application, to have his name entered
in or omitted from the register and also the general jurisdiction to decide any
question which it is necessary or expedient to decide in connection with such
D an application. It has been held in Mis Ammonia Supplies Corporation (P)
Ltd. v. Mis Modern Plastic Containers Pvt. Ltd and Ors., 1 that the
jurisdiction exercised by the Company Court under Section 155 of the
Companies Act, 1956 (corresponding to Section 111 of the present Act,
before its amendment by Act 31 of 1988) was somewhat summary in nature
E and that if a seriously disputed question of title arose, the Company Court
should relegate the parties to a suit, which was the more appropriate remedy
for investigation and adjudication of such seriously disputed question of title.

Mr. Kapadia, learned counsel for CMF, contended that as far as the
petition of CMF was concerned, it merely invoked the summary remedy
F under Section 111 of the Companies Act. The only prayer made by CMF
before the CLB was that it had purchased the suit bonds from ABFSL and,
therefore, it was entitled to be registered as the owner of the suit bonds in
the register of NPCL. Relying on Manna/a/ Khetan v. Kedar Nath Khetan
and Ors. 2 he contended that the provisions of Section I08 of the Companies '
Act, 1956 were mandatory and unless they were fulfilled, a registration of
G the transfer of the bonds could not be done. Further, he relied on the
exemption granted from certain provisions of Section I08( I) in respect of
bonds issued by a Government company. He placed reliance on Notification

l. AIR 1998 SC 3153
H 2. AIR 1977 SC 536
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] .23

G.S.R. 1294 (E) dated 17.12.1986 issued by the Central Government in A
exercise of its powers under Section 620(l)(a) of the Companies Act, 195.6.
The said Notification reads as under:

"In exercise of the powers conferred by clause (a) of sub-section
(I) of section 620 of the Companies Act, 1956 (1 of 1956), the
Central Government hereby directs that the provisions of sub- B
section (I) of section 108 of the said Act, in so far as it requires
a proper instrument of transfer to be duly stamped and executed by
or on behalf of the transferor and by or on behalf of the transferee,
shall not apply with respect to bonds issued by a Government

- company, provided that an intimation by the transferee specifying
his name, address and occupation, if any, has been delivered to the
company along with the certificate relating to the bond, and if no
such certificate is in existence, along with the letter of allotment of
c

the bond, a copy of this notification having been laid in draft before
both the Houses of Parliament as required by sub-section (2) of
section 620 of the said Act." D
It is the contention of Mr. Kapadia that the provisions of Section 108(1)
of the Companies Act, 1956 are conditionally excluded by reason of this
Notification as the suit bonds were issued by NPCL, which is admittedly a
Government company. Thus, according to him, the suit bonds would be
transferable by endorsement and delivery as long as the transferee gave
E
1ntimation as contemplated under the Notification. According to him, the
terms of Section 108(1) as amended by the aforesaid Notification had been
fulfilled, and, therefore, there was an obligation on the part of NPCL to
register CMF as the registered holder of the suit bonds. Emphasising that the
intention of the legislature is to enable transferability of bonds issued by F
Government companies with greater facility and lesser formality, he referred
to provisions of the Companies Act, 1956 and the Transfer of Property Act,
1882 (hereinafter referred to as the "TP Act"). Section 2(12) of the
Companies Act, 1956 defines 'debenture' as including debenture stock
bonds and any other securities of a company, whether constituting a charge
on the assets of the company or not. Chapter VIII of the TP Act deals with
G
transfers of actionable claims. Section 137 of the TP Act, however, provides
that the provisions in Chapter VIII (Sections 130 to 136) would not apply
to stocks, shares or debentures. The argument is that the mode of transfer.
of actionable claims specified in the TP Act (Sections 130 to 136) has been
specifically done away with. Even the mode of transfer under Section I 08 H
24 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A of the Companies Act has been considerably relaxed insofar as bonds issued
by Government companies are concerned. So far as the nature of the
proceedings in the Misc. Petition are concerned, it 1s the submission of Mr.
Kapadia that the only issue to be considered is whether CMF is a transferee
of the bonds, and whether CMF has complied with Section I08 read with
the Notification G.S.R. 1294(E) dated 17.12.1986 so as to be eligible for
B registration as the holder of the bonds.

Even if the petition filed under Section 111 of the Companies Act, 1956
was only for this limited relief of registering the petitioner-CMF as the holder
of the suit bonds, we cannot accept the contention of Mr. Kapadia for two
c reasons. In the first place, whatever might have been the limited jurisdiction
of the CLB under Section 111 of the Companies Act, 1956, while entertaining
the petition, the fact that the said petition was transferred to the Special Court
by an order of this Court needs to be reckoned with. The order of this Court
is specific and requires the trial of Special Court Suit No. 11/96 along with
Misc. Petition No. 81/95. The limitation of the jurisdiction of the CLB, if
D any, does not apply to the Special Court, which is clothed with all the
jurisdiction of a civil court. Secondly, merely by filing a petition under
Section 111 of the Companies Act, 1956 and by placing reliance on Section
I08 of the Companies Act, 1956 the petitioner-CMF cannot succeed. It
would have to go further and prove that it is validly a transferee of the suit
E bonds, if that question is put in issue .. Thus, in our view, each of the two
contesting parties, i.e. SCB and CMF, would have to prove their rights and
show how they are entitled to the suit bonds before any relief could be
granted either in the Suit or in the Misc. Petition.

II. Nature and Effect of 15% Arrangement:
F
The Special Court has laid great emphasis on what it has called the
'15% arrangement' and concluded that because of this 15% arrangement
HPD became owner of the suit bonds, which he rightfully transferred to CMF
for consideration. The learned counsel for the appellant has severely •
criticised this conclusion as totally contrary to the evidence on record.
G
Under the instructions of the Reserve Bank of India (hereinafter
referred to as "RBI"), banks and financial institutions were required to
maintain a certain liquidity ratio of debt to equity. They could have ready
forward transactions in securities only with other banks and only in respect
H of government and other approved securities. The statutory i'quidity ratio
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, I.] 25

was maintained by sale and purchase of securities, issued by Government A
companies and public sector institutions.

An unhealthy practice had developed among all the banks and financial
institutions affected by the securities scandal, under which some securities
were repeatedly shown as bought and sold in order to advance finances to
..... certain brokers. HPD was one of them. The so called '15% arrangement' B
was an informal arrangement with HPD under which SCB bought securities
from other counter-parties, as directed by HPD, and also sold them to such
parties at such rates as designated by HPD. A desired sale price was arrived
at so as to ensure that SCB obtained a return of 15% of the transaction. The
evidence on record consisting of the Janakiraman Committee Report (the
report of a High Powered Committee appointed by RBI to investigate into
c
the irregularities in the funds management in commercial banks and
financial institutions, in particular in relation to the dealings in Government
securities) has examined this arrangement and reported upon it in Paragraphs
8.1 to 8.7 of its Fourth Interim Report (March 1993), particularly with regard
to the way in which the arrangement operated in SCB. The Joint Parliamentary D
Committee Report (hereinafter referred to as the "JPC Report") (Exhibit-26)
vide Paragraphs 8.49-8.51 has also explained this arrangement. There is also
the evidence tendered on record in the form of replies to interrogatories in
which SCB has explained the details of the scheme and how the 15%
arrangement worked. The agreement between HPD and SCB was that, if
E
SCB followed the instructions of HPD in the matter of which securities are
to be bought or sold, from or to which parties, at what rates and when; SCB
was assured of a net return of 15% of the outlay in the purchase of the
securities concerned. If the return was less than 15%, HPD would bear the
difference; ifthe return happened to be higher than 15%, HPD would be paid
the difference. The evidence on record clearly bears out that this is how the F
15% arrangement worked between SCB and HPD.

A. Public Policy and Res Judicata:
,._ t

Mr. Jethmalani invited our attention to an earlier judgment of this Court
in Canara Bank and Ors. v. Standard Chartered Bank3 where the nature of
G
the 15% arrangement was carefully considered by this Court. Incidentally,
the said judgment was delivered in a dispute between the same parties and
after analysing the nature of the 15% arrangement, this Court categorically

3. [20021 10 sec 697. H
26 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A rejected the argument that it was opposed to public policy. This Court upheld
the judgment of the Special Court rejecting the contention that the 15%
arrangement was contrary to public policy. While rejecting the contention
that the 15% arrangement was opposed to public policy, the Special Court
had made the following findings:

B "The object and consideration of the suit contracts are purchase/sale
of the securities and payment of price. Such securities contracts are
normally entered into by banks. These may be for SLR purposes
or in the normal course of business of the bank. It is the business
of the bank to try and make profit. Thus even if these were part of
C the 15% arrangement, provided there was such an arrangement,
would not make them against public policy if it was a genuine
security transaction. None of the circulars relied upon by Mr. Salve
prohibit such transactions. In my opinion none of the circulars have
any bearing on the point under consideration. The suit transactions
or transactions under the alleged 15% arrangement are not against
D the subject matter of these circulars. They are also not even against
any policy laid down therein. I thus see no illegality."

These were expressly approved by this Court in the judgment. It
appears to us that much of the controversy about the nature of the 15%
arrangement could have been avoided if the judgment in the Canara Bunk
E case (supra) had been kept in mind. We notice from the impugned judgment
that the decision of this Court in Canara Bank (supra) was specifically
brought to the notice of the Special Court, but it appears to have been brushed
aside on the grounds, first, that the doctrine of res judicata would not apply
as Section 13 of the Act had an overriding effect; second, the exact scope
F of the 15% arrangement was not determined by evidence in the previous suit;
and third, that an arrangement by which banks and public financial institutions
are enabled to earn a return higher than what is stipulated by the government/
RBI, would cause inflation and the government would not be able to control
its deficit, hence it was opposed to public policy . The Special Court said:
....
"In the economic sense, they are not legitimate. On this point also, therefore,
G there is no merit in the arguments advanced on behalf of SCB."

We are afraid that the Special Court was wrong on all the counts. On
the question of res judicata, the Special Court failed to notice that the
doctrine of res judicata is not merely a matter of procedure but a doctrine
H evolved by the courts in larger public interest. What is enacted in Section
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. (SRIKRISHNA, J.] 27

11 of the Civil Procedure Code ("CPC") is not the fountain-head of the A
doctrine, but merely the statutory recognition of the doctrine, which rests on
public policy. (See in this connection Daryao and Ors. v. The State of UP.
and Ors. 4; Guda Vijayalakshmi v. Guda Ramachandra Sekhara Sastry 5 and
Hope Plantations Ltd. v. Taluk Land Board, Peermade and Anr. 6 ) In the
previous suit to which both SCB and Canara Bank were parties, the same
issue with regard to ' 15% arrangement' with HPD was urged by CMF as B
a non-suiting factor, but was negatived both by the Special Court and by this
Court. Issue No. I 0 in the previous suit was the relevant issue dealing with
15% arrangement, which was as follows:

"Whether the suit transactions entered into by the Plaintiffs with the
Canbank Mutual Fund were in fact entered into by the plaintiffs on
c
behalf of Hiten Dalal as alleged in Para 5(d) of the Written
Statement of Defendant No. l ?"

This was an issue raised by CMF which was defendant no. l in that
suit (Special Court Suit No. 13/94). The burden of proving this issue was D
on the defendant and the Special Court answered the issue in the negative
and observed that the counsel for defendant no. 1 had admitted that there
was no evidence to support this issue. Consequently, the Special Court held
that the issue was answered in the negative i.e. against defendant no. l. Since
the Special Court findings were finally upheld by this Court in the judgment
reported in Canara Bank (supra) and a review petition thereagainst was also
E
dismissed, we are of the view that it is not open for this Court to again raise
the issue and take a view contrary to what had already been decided in the
previous suit, particularly in view of the fact that there has been no new
revelatory evidence on this issue.
F
We are not in agreement with the view taken by the Special Court that
Section 13 of the Act overrides the doctrine of res judicata. Section 13 of
the Act provides: "The provisions of this Act shall have effect notwithstanding
• anything inconsistent therewith contained in any other law for the time being
in force or in any instrument having effect by virtue of any law, other than
this Act, or in any decree or order of any Court, tribunal or other authority". G
This was certainly not intended to abrogate all the established principles of
law, unless they were directly in conflict with the express provisions of the
4. [19621 1 sec 574.
s. [1981) 2 sec 646.
6. [ 19991 s sec s9o H
28 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A Act itself. There is nothing in the Act which is inconsistent with the doctrine ... .
of res judicata, per se, as seems to have been assumed by the Special Court.

We are also unable to appreciate the thinking of the Special Court that
there was something mora!ly or economically reprehensible in the arrangement
which was brought about between HPD and SCB as a result of which SCB
B was able to earn higher n:tum.

B. Evidence on Record:

The evidence as to the nature of the 15% arrangement was SCB's
replies to interrogatories in previous suits, tendered by CMF as Exhibits 5,
c 6, 8 and 9 as evidence in the present suit, the Janakiraman Committee Report
and the JPC Report, which recognise and explain the 15% arrangement.
There is nothing in all the said evidence to suggest that by entering into such
a contractual transaction with HPD, HPD became the owner of the bonds.
The evidence, on the other hand, clearly brings out that at all times the
D securities transactions would be between SCB and the counter-party-banks,
the legal relationship always being between the said two parties. In our view,
therefore, the Special Court grossly erred in drawing a conclusion based on
no evidence and attributing to the said arrangement a legal character, which
was not proved on record. It also erred in ignoring the finding on the issue
given in the previous Special Court Suit No. 13/94 as upheld by the judgment
E of this Court in Canara Bunk (supra). The Special Court has also observed
that under the 15% arrangement SCB was "maintaining broker's position".
While this may be appropriate jargon in a stock exchange, what exactly is
the legal implication, if any, of such an expression is unclear. We find no
evidence on record to suggest that merely because of the 15% arrangement
F the legal ownership of the securities was transferred to HPD in any manner,
since all the transactions appear to be between SCB and counter-party-banks.
This would be evident from the fact that if the counter-party-banks failed
to deliver the securities or failed to pay for the securities delivered, the legal
action could only be between SCB and the counter-party-banks with which •
the transaction took place and not by or against HPD.
G
We are unable to accept the conclusions drawn by the Special Court
with regard to some of the documents produced by CMF as defendant, about
which no evidence by way of explanation was led by either party.

H In the absence of proper explanation, it was not open to the Special
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. (SRIKRISHNA, J.] 29

Court to make inferences or assumptions with regard to terms used in the A
documents, for example, SCB's securities ledger in relation to the suit bonds
(Exhibit- I I), which pertains to the sale and purchase of the suit bonds with
different counter-parties. This document as such does not contain the
description 'portfolio', but the said appellation has been given to it by the
Special Court on its own. The Special Court has observed thereupon:
"Therefore, all such transactions were entered into by the bank on behalf of B
HPD. Therefore, they were transactions of HPD. This is amply illustrated
by Exhibit-I I. A portfolio represents stock held by SCB on behalf ofHPD.
HPD was entitled to enter into buy transactions and sale transactions in
respect of securities coming under that portfolio. The portfolio was built up
by SCB by purchasing securities at the instance of HPD. This is also called c
as building up of position. The suit contract comes under Exhibit- I I. By the
suit contract, the LoA came within the portfolio of HPD. He was allowed
to deal with the LoA under the portfolio." We are afraid that this inference
is not readily available ex facie from the document; nor was there any other
evidence given by any witness explaining the document, suggesting it.
D
Further, the word 'loan' used in the Security Ledger (Exhibit-I I) was
seized upon by the Special Court to draw an unwarranted inference. The
Special Court has held that this term shows "lending of scrip to HPD" and
has then gone on to hold as follows: "this word has to be read ·while
construing the entries in Exhibit- I I beginning from 27 .2.1992. The word E
"loan" must be read with the column "Book Value" and the column "Profit
and Loss" and "Balance". That, last column "Balance" represents HPD's
outstanding to SCB." There is no warrant, whatsoever, for such an explanation
to this document as no witness has said so. Further, the word 'loan' also
appears to have been used in the BR issued by AB to SCB in respect of the
suit bonds (BR no. 23728 dated 27.2.1992). There was no justification for F
giving an interpretation to the word 'loan' used in any of the documents
without any explanation by a witness.

The Special Court also makes a finding that the word 'Direct' used in
SCB's ledger showing transaction details ofSCB from April 1991 to May G
1992 (Exhibit-7) suggests that such transactions were all under the 15%
arrangement. This again appears to be an inference which has been drawn
by the Special Court without any supporting evidence thereto. In the replies
to the interrogatories as well as the evidence of the witnesses no one has
asserted that all transactions described as 'direct' were necessarily covered
H
30 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

by the 15% arrangement. Although, the reply to Question no. 43 of the ... '
A
interrogatories, in Suit No. 14/94, did suggest to the contrary, the said reply
not having been tendered in evidence and taken on record, does not form
part of the evidence before the Special Court. The Special Court is, therefore,
not justified in drawing this conclusion for which there was no acceptable
evidence.
B
Mr. Jethmalani contended that the chargesheet (Exhibit-4), FIR (Exhibit-
3), SCB's answers to interrogatories (Exhibits 5, 6, 8 and 9), details ofSCB's
securities transactions during April 1991 - May 1992 (Exhibit-7), security
ledger of SCB in relation to the suit bonds (Exhibit-I I), SCB's deal slips
c dated 9/5/92 (Exhibit-I 0), SCB's vouchers (Exhibit-12), and the Janakiraman
Committee Report (Exhibit-18) were all produced by CMF; and relying on
the judgments of this Court in P.C. Purushothama Reddiar v. S. Perumal'
and R. V.E. Venkatachala Gounder v. Arulmigu Viswesaraswami & V.P.
Temple and Anr. 8 he urged that the contents of these documents would be
binding on CMF. The Special Court has relied on these documents to arrive
D at a conclusion which does not arise from them.

While it may be true that the Special Court has been given a certain
amount of latitude in the matter of procedure, it surely cannot fly away from
established legal principles while deciding the cases before it. As to what
inference arises from a document, is always a matter of evidence unless the
E document is self-explanatory. We do not think that any of the documents
placed on record during the trial were self-explanatory; nor were they
explained by any competent witness on either side. In the absence of any
such explanation, it was not open to the Special Court to come up with its
own explanations and decide the fate of the Suit on the basis of its inference
F based on such assumed explanations. In fact, these inferences run contrary
to the oral evidence given by Kalyana Raman (PW-!) in relation to the
transaction of 26.2.1992.

The Special Court has also adversely commented on the conduct of
SCB in not leading evidence to prove what the 15% arrangement was. We
G fail to see how a party could be called upon to lead evidence with regard
to an issue which was no part of its case. The 15% arrangement was brought
on record at the instance of CMF and the burden, if any, of proving its details

1. [19721 1 sec 9.
H s. 120031 s sec 1s2.
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 31

lay on CMF. Although, a number of documents were produced on record A
as called for ~y CMF, there was no obligation on SCB to explain any of them.

Learned counsel for CMF also contended that SCB failed to produce
relevant documents that would have established what the 15% arrangement
was. For this failure, he contended that an adverse inference should be drawn
against SCB. For this proposition, he relies on the judgments of this court B
in Hirala/ & Ors. v. Badkulal& Ors."'; Gopa/ Krishnaji Ketkar v. Mohamed
Haji Latif & Ors. 10 ; S. P. Chengalvaraya Naidu (dead) by L.R 's. v.
} Jagannath (dead) by L.R 's. & Ors. 11 and CitiBank N. A. v. Standard
Chartered Bank & Ors. 12•

This argument is met by learned counsel for SCB. An adverse inference
c
is a presumption which the court is entitled to draw under Section 114 of
the Indian Evidence Act, 1872 read with illustration (g) thereto. Mr.
Jethmalani contended that the weight of the authorities would show that
unless there are some special circumstances making it obligatory for a party
.. to produce evidence, no adverse inference can be drawn unless a party has D
been called upon to or ordered to produce evidence and fails to do so. Mr.
Jethmalani relies on Mt. Bi/as Kunwar v. Desraj Ran) it Singh and Ors. 13,
Ramrati Kuer v. Dwarika Prasad Singh and Ors. 14 and Smt. Indira Kaur and
Ors. v. Shri Sheo Lal Kapoor 15 •

In Hira/al 's case (supra), this court reiterated the observations of the E
Privy Council in Murugesam Pillai v. Gnana Sambandha Pandara Sannadhi 16
where the Privy Council laid down the general rule of procedure that instead
of relying on the abstract doctrine of onus of proof a party to the suit
"desiring to rely upon a certain state of facts" ought not to with old from the
court the written evidence in his possession. In Gopal Krishnaji Ketkar 's case F
(supra) the observation in Murugesam Pillai (supra) was reiterated and it was

9. AIR (1953) SC 225.

IO. AIR (1968) SC 1413.
11. AIR (1994) SC 853.
G
12. AIR (2003) SC 4630.
13. AIR (1915) PC 96.
14. AIR (1967) SC 1134.
15. AIR (1988) SC 1074.

16. AIR (1917) PC 6. H

f
32 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

"~
A observed: "Even if the burden 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 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
B doctrine of onus of proof." S. P. Chengalvaraya Naidu (supra), was a
situation of a fraudulent litigant basing his case on falsehood and witholding
vital documents. Citibank (supra) merely relies on the observations made in
Murugesam Pillai (supra) and Gopal Krishnaji Ketkar (supra), both of which
say that it is not a sound practice for those "desiring to rely upon a certain
c state of facts to withold from the court" the best evidence which is in their
possession.

On the other hand, the three authorities on which Mr. Jethmalani relied
independently talce the view that unless a party is called upon to produce
evidence or ordered to do so by the court and fails to do so, no adverse "'
D inference can be drawn against such party. Mr. Jethmalani distinguished the
two apparently contradictory lines of authorities by pointing out that in the
authorities relied on by Mr. Kapadia the facts showed that there was a special
obligation upon the party concerned to produce the relevant documer,ts even
without being called upon or ordered to do so and that the party had failed
to produce them. Further he pointed out that the observations of the Privy
E
Council originating from Murugesam Pillai (supra) which have been reiterated
in the subsequent cases including Citibank (supra) would apply only if the
party is "desiring to rely upon a certain state of facts'". He rightly contends
that the 15% arrrangement was neither any part of SCB' s case, nor was SCB
desiring to rely on the said state of facts. In the circumstances there was no
F obligation upon SCB to produce any documents to prove the case put
forward by CMF; there was no situation in which adverse inference could
be drawn against SCB. Finally, Mr. Jethmalani also urged that irrespective
of what the parties did, the Special Court could have, if it was so minded,
~
....
invoked its power under Section 165 of the Indian Evidence Act, 1872 and
directed production of all documents it considered relevant instead of relying
G
on adverse inference which was doubtful in the circumstances. This is
particularly so with regard to the argument of CMF that the computer spread
sheets had not been produced, as paragraph 7 of the written statement of
CMF indicates that CMF was aware of the existence of such sheets and yet
failed to call upon SCB to produce it or seek an order for production thereof
H from the Special Court.
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 33

The whole thrust of the impugned judgment is that the transactions A
between SCB and the counter-party-banks, which were covered by the 15%
arrangement were sham transactions, making HPD the owner of the suit
bonds. Where a transaction results in rights and obligations, it can never be

- treated as a sham transaction. (See in this connection Chow Yoong Hong v.
Choong Fah Rubber Manufactory 17 .) It was nobody's case that in any of the
transactions under the 15% arrangement, HPD could have been sued for
enforcement of any right arising therefrom between SCB and ABFSL.
B

C. Estoppel:

Issue No. 5 framed by the Special Court was whether SCB was C
estopped from making any claim to the suit bonds by denying the authority
of HPD to deal in the suit bonds, as SCB had actually, ostensibly or
negligently permitted HPD to deal with the suit bonds. Although, the Special
Court answered the issue in the affirmative i.e. in favour of CMF and against
SCB, there does not seem to be any specific discussion on this issue nor any
reason supporting the said finding. It is however, true that the Special Court D
took the view that the direct fallout of the 15% arrangement was that HPD
became the owner of the suit bonds and had the right to deal with the suit
bonds as he pleased; and since this was done to the knowledge of and by
acquiescence of SCB, SCB was estopped from denying that HPD had
acquired any such right to deal with the suit bonds or to transfer them to E
any other person.

The Special Court has taken the view that the transactions reflected in
the Security Ledger (Exhibit-11 ), indicated funding of the broker by SCB
and that it was something like a 'running account' of HPD in the books of
SCB, which had opened with an entry of 26.2.1992 and was settled on F
9.5.1992. It then observed: "Under Exhibit-11, the suit scrip of9% NPCL
bonds was made available to HPD for raising finances either by sale, pledge
or Ready Forward. It was bought for HPD as he had assured a fixed return
to SCB. The (sic) HPD was entitled to trade. He was entitled to take position
in the market on the suit bonds bought for him as he h;s assured a fixed
return. He was entitled to take a position on suit bonds. He took that position
G
through SCB. Therefore, SCB had taken his position under Exhibit- I I.
Under the above arrangement, SCB could claim return of the security or
equivalent money value only from HPD as the transactions in Exhibit-11 are

17. . [1962) AC 209, page 216. H
34 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A under 15% Arrangement. Therefore, SCB cannot claim any relief against
CMF. They can only claim relief against HPD. SCB is estopped from
claiming any relief against CMF. SCB, therefore, has no right to object to
the transfer of bonds by NPCL in favour of CMF."

Learned counsel for SCB however, criticised the impugned judgment
B of the Special Court on the ground that this finding, though not made
specifically, but diffusedly over the impugned judgment arises from a
misapprehension as to the exact nature of the doctrine of estoppel. Learned
counsel contended that estoppel would require a representation by SCB, by
acting upon which CMF should have altered its position to its prejudice.
Since the burden of proving the issue was on CMF, CMF had to show what
c the representation was, to whom it was made, how CMF had altered its
position as a result of such representation and what prejudice it had suffered.
It was contended that no evidence was led by CMF on any of these aspects
and, therefore, the Special Court had no material whatsoever before it to
make any finding on the issue of estoppel other than pure conjecture and
D speculation based upon its uuderstanding of the 15% arrangement. Further,
learned counsel contended that if HPD had obtained the suit bonds by theft
or by committing any other offence, then there would be no question of
estoppel of SCB from denying the title of HPD or of any one else who
claimed to have obtained ·title to the suit bonds from HPD. In Mercantile
Bank of India ltd. v. Central Bank of India ltd. 18 , it was observed:
E
"though estoppel has been described as a mere rule of evidence,
it may have the effect of creating substantive rights as against the
person estopped. Of the many forms which estoppel may take, it
is here only necessary to refer to that type of estoppel which enables I
a party as against another party to claim a right of property which
F in fact he does not possess. Such estoppel is described as estoppel
by negligence or by conduct or by representation or by a holding
out of ostensible authority."

"that it must be the neglect of some duty that is owing to the person
led into that belief, or, what comes to the same thing, to the general
G public of whom the person is one, and not merely neglect of what
would be prudent in respect to the party himself, or even of some
duty owing to third persons, with whom those seeking to set up the
estoppel are not privy."

H 18. AIR (1938) PC 52.
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 35

"There is a breach of the duty if the party estopped has not used A
due precautions to avert the risk. The detriment may entitle the
innocent third person either to prosecute or to defend a claim. His
identity may be ascertainable only by the event, in the sense that
he has turned out to be the member of the general public actually
reached and affected by the conduct, negligence, representation or
ostensible authority." B

It was thus held that a plea of estoppel could not be availed of if there
was no duty owed by the person sought to be estopped, nor any representation
made by such person. In New Marine Coal Co. (Bengal) Pvt. Ltd v. The
Union of India 19, this Court had occasion to examine the doctrine of estoppel C
and cited with approval the following observations in Halsbury's Law of
England2°: "before any one can be estopped by a representation inferred from
negligent conduct, there must be a duty to use due care towards the party
misled, or towards the general public of which he is one", that, it was
required that "the negligence on which it is based should not be indirectly
or remotely connected with the misleading effect assigned to it, but must be D
the proximate or real cause of that result21 ." The judgment of the Privy
Council (supra) was approvingly cited by this Court, which also observed,
"before invoking a plea of estoppel on the ground of negligence, some duty
must be shown to exist between the parties and negligence must be proved
in relation to such duty." E
Mr. Jethmalani, therefore, is justified in his submission that there was
no such duty owed by SCB to CMF. At any rate, none was shown to have
existed. Hence, there is no substance in the plea of estoppel raised by CMF.

D. The Benami Transactions (Prohibition) Act, 1988: F
One of the arguments canvassed before us by Mr. Jethmalani was on
the effect of Section 4(2) of the Benami Transactions (Prohibition) Act, 1988
on the defence of CMF in the Suit. The argument was that CMF has
contended, though not in precise terms, that the suit bonds did not belong
to SCB at any point ohime because the 15% arrangement was only a funding G
transaction under which the real owner was HPD, though the suit bonds were

19. AIR 1964 SC 152 paras 19, 20.
20. Vol. 15, p. 243, para 451.
21. ibid at para 453. H
36 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

A ostensibly held by SCB. Mr. Jethmalani contends that this contention ofCMF
is specifically barred by Section 4(2) of the Benami Transactions (Prohibition)
Act, 1988. The learned counsel for CMF, however, relies on Section 3(3)
of the Act, which reads thus:

"Notwithstanding anything contained in the Code and any other law
B for the time being in force, on and from that date of notification
under sub-section (2), any property, movable or immovable, or
both, belonging to any person notified under that sub-section shall
stand attached simultaneously with the issue of the notification."

c sectionThe(3)force of the words "belonging to any person notified" used in sub-
of Section 3 of the Act are wide enough to result in attachment
of the property which belongs to the notified person irrespective of in whose
name the property stands. The provisions of Section 13 of the Act give an
overriding effect notwithstanding anything inconsistent therewith contained
in any other law for the time being in force. Even assuming that the argument
D of Mr. Jethmalani based on Section 4(2) of The Benami Transactions
(Prohibition) Act, 1988 is a plausible one, we are of the view that the
combined effect of Sections 3(3) and 13 of the Act would give an overriding
effect to the provisions of the Act. It is rightly urged by Mr. Kapadia, learned •
counsel for CMF, that, if that were not so, then the whole purpose of the
E Act would be defeated since the objective of the Act was to reach out and
attach the property in whichever hands it was, irrespective of in whose names
the property stood, as long it was property belonging to a notified person.
Thus, the contention based on Section 4(2) of the Benami Transactions
(Prohibition) Act, 1988 has been rightly rejected by the Special Court.
F
Much was said by the learned counsel for CMF about the manner in
which SCB has hedged its replies. The learned counsel criticised the attempt
of SCB to hide the true facts and contended that SCB kept on changing its
stand from time to time. He highlighted that the stand taken by SCB in the
G Suit, the stand taken by it in the reply to the Petition and the stand taken
by it before this Court was wholly inconsistent and, therefore, urged that the
claims of SCB should fail. We think that this is a classic case of the pot
calling the kettle black. When we look at the defence taken by CMF, the same
criticism can be validly levied against it. CMF started by saying that it had
H bought the suit bonds from ABFSL. When it found that the evidence was
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRJKRJSHNA, J.] 37

~ ... against it, it shifted its stand and said it had bought them from HPD with
HPD acting on behalf of ABFSL or SCB as the broker, or on his own behalf.
A
We do not think that on the question of bona fides and consistency, there
is anything to choose between SCB and CMF. Since both parties are tarred
by the same brush, the issue will have to be resolved purely on the basis of
what the legal evidence demonstrates.
B
III. Did SCB get any title to the suit bonds:

It is the case of SCB that it had the title to the suit bonds as it obtained
the suit bonds under a contractual agreement by paying consideration for the
suit bonds. This transaction is based on documentary evidence on record. The
Cost Memo (Exhibit-B) dated 26.2.1992 issued by ABFSL evidences that
c
the suit bonds were offered to SCB at the consideration indicated in the
document. The Cost Meiho indicates the details of the transactions such as
the description of the bonds, the number of bonds sold, the rate at which they
were sold and the total consideration payable. This is accompanied by a BR.
Against this, there is a pay order dated 26.2.1992 issued by SCB in favour D
of ABFSL in the sum ofRs.42,52,50,000 evidencing that such consideration
had been paid. The BR No. 23728 dated 26.2.1992 evidences that upon
receipt of the agreed consideration, being the cost of the suit bonds sold to
.. SCB, the BR was issued to undertake that bonds of the face value of Rs .
50 crores would be delivered when ready, in exchange for the BR duly
discharged and that in the meantime the suit bonds would be held on account
E
of SCB. The letter dated 26.2.1992 from ABFSL to SCB shows that the LOA
of the suit bonds was forwarded to SCB inter alia with a request for
discharging the corresponding BR No. 23728 on receipt of the LOA. The
register of SCB shows that with reference to BR No. 23728, the bonds had
been received, although, the word 'photocopies' appears to have been F
inserted therein. It is the case of SCB that one of its employees, Mulgaonkar,
had acted fraudulently by inserting this word and causing misappropriation
of the suit bonds. We find that this part of the case was not part of the
' t pleadings of SCB either in its plaint or in the written statement filed in reply
to CMF's petition. There was also no reference to it at any time when
G
evidence was led by the parties. The first time this part of the case appears
is in the copy of the chargesheet filed by CBI against certain employees of
SCB and HPD for several criminal offences. Mr. Jethmalani contended that
since this chargesheet was produced on record at the instance of CMF, the
avennents in the chargesheet must be taken to have been proved before the
court. Even assuming Mr. Jethmalani is right in characterising the charge H
38 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A sheet as a public document within the meaning of Section 35 of the Indian
Evidence Act, 1872, we cannot accept all that is stated in the charge sheet
as having been proved. All that we can say is that it is proved that the police
had laid a chargesheet in which such allegations have been made against the
accused. We need not delve further into it since the criminal proceedings
against HPD and others are still pending and it will be up to the appropriate
B court to decide the correctness or otherwise of the charges in the chargesheet.
All that can be said at this stage is that there were serious allegations that
the original LOA went out of the possession of SCB by some nefarious
means.

c had noLearned counsel for CMF contended that even as on 26.2.1992 SCB
title to the suit bonds since the suit bonds were under the 15%
arrangement and that under the 15% arrangement the transaction was one
merely of funding; in other words, that there was no real buyer or seller and
it was mere paper work intended as a cover for lending money to HPD. We
are unable to accept this argument for more than one reason. The documents
D which we have referred to above clearly evidence a transaction of sale and
purchase of the suit bonds by SCB upon payment of consideration. Secondly,
ABFSL, who was the other party to the transaction, has come forward and
accepted the transaction unhesitatingly. There is no reason why all this
evidence should be discarded by choosing the chimera of the 15% arrangement
E theory. We, therefore, hold that SCB validly acquired title to the suit bonds
as a result of the transaction entered into between itself and ABFSL on
26.2.1992. And that the suit bonds were in fact handed over to SCB although,
it is not evident as to how the suit bonds went out of the possession of SCB.
Therefore, the contention of CMF that SCB never acquired title to the suit
bonds cannot be accepted. Even the Special Court finds that the contract of
F 26.2.1992 with regard to the suit bonds had been proved by the evidence
on record. However, the Special Court goes on to say that merely proving
the suit contract was not sufficient because it had to be further proved that
the suit bonds had been acquired by SCB, as, in its view, the mystique of
the 15% arrangement made HPD the real owner of the bonds. ......
G Mr. Jethmalani rightly urged that the title of any person acquiring
property would depend upon the antecedent title of the person from whom
the property is acquired. In the instant case, the suit bonds were validly
acquired by ABFSL from the original issuer, namely, NPCL and as a result
of the transaction dated 26.2.1992, SCB in its turn acquired them by payment
H of consideration, from ABFSL. He relied on the judgments in Vasudev
STANDARD CHARTERED BANK"· ANDHRA BANK FINANCIAL SERVICES LTD. [SRlKRISHNA, !.] 39

Ramchandra She/at v. Pranlal Jayanand Thaker and Ors. 21 and L.I.C. of A
India v. Escorts Ltd and Ors. 23 in support of this proposition. The title of
SCB arises from antecedent ownership of ABFSL, and it is proved that the
suit bonds transaction was in accordance with law.

Mr. Kapadia, learned counsel for CMF, contended that the evidence on
record showed that SCB had acquired no title at all to the suit bonds even B
·on the initial date of transaction i.e. 26/27 .2.1992. He contended that the
property in the suit bonds had never passed to SCB as there was no evidence
of endorsement or delivery of the suit bonds. He extensively referred to the
pleadings in the plaint in Suit No. 11196 and highlighted the fact that what
was pleaded in the plaint was non-delivery of the suit bonds. The only prayer C
made was for a decree against NPCL, which was holding the bonds as a
bailee for CMF, since CMF had forwarded the original LOA to NPCL and
sought registration of its name as holder of the suit bonds. He further
highlighted the fact that a decree had been sought against only NPCL, as a
bailee, though CMF was in constructive possession being holder of the
receipt for lodging with NPCL. He also pointed out that the plaint sought D
the relief of refund of money from ABFSL as an alternative relief. It is his
contention that, at the most, the frame of the Suit could have been as a suit
for specific performance, but since it was framed as a suit on title, it must
fail. Further, he urged that even the alternative prayer of money claimed
against ABFSL was given up during the trial and, therefore, the Suit must E
necessarily fail in its entirety.

He also pointed out that both the 17% NPCL bonds and the 9% NPCL
bonds (suit bonds) were bought in the same manner, on the same day, as
part of the same transaction, and a suit is filed for 17% NPCL bonds also
being Suit No. 3809/92 only against ABFSL and only for a money decree. F
In his submission, it is somewhat surprising that with respect to the two
claims - in respect of 9% NPCL bonds and 17% NPCL bonds - which were
transacted on the same date under the same circumstances, while the Special
•• Court Suit No. 11196 pertaining to the suit bonds seeks a declaration ohitle,
the suit in respect of the 17% NPCL bonds being Special Court Suit No.
3809/92 is for a money claim for refund of the consideration paid. He also
G
referred to the details of the evidence and pointed out that while SCB came
to the court alleging that it had never received the original LOA, which was

22. AIR (1974) SC 1728 ..
23. AIR (1986) SC 1370. H
40 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A its consistent stand in its pleadings in the Suit and also in the Petition, after
the CBI submitted the charge sheet, SCB came out with the story of
conspiracy of Mulgaonkar with HPD. Even this contention was not argued
-
..... '

in the trial court at all, nor was any evidence led that SCB had made any
reasonable enquiry to find out how the original LOA went into the hands

B
of HPD. There is also no pleading or evidence to show endorsement and
delivery of the concerned bonds. Relying on the decisions of this Court in
Nagindas Ramdas v. Dalpatram lccharam alias Brijram and Ors. 24 ; Thiru
-
John v. Subramhanyam v. The Returning Officer & Ors. 2' and Bharat Singh
and Ors. v. ivfst. BhagirathP6, Mr. Kapadia contended that there were
admissions galore by SCB both in the pleadings and thereafter in the
c evidence, and as such they could not be permitted to change their stand. He
pointed out that on 2. 7.1997 the money decree claim against ABFSL was
specifically given up and on the next day the officer of ABFSL, Kalyana
Raman (PW-I), gave evidence for the plaintiff-SCB and the stand that the
original LOA was not received by SCB was conveniently given up by SCB.

D He also contended that the documents on which reliance is placed by
SCB were not proved. The evidence of the plaintiffs witness, Kalyana
Raman, employee of ABFSL, shows that only two persons, namely, himself
and another officer of ABFSL, R. V. Shenoy, had dealt with such transactions.
But neither officer claimed any personal knowledge of the suit bonds
transaction. Further, that Kalyana Raman gave evidence that the dealers were
E
mainly dealing with one Shiv Kumar, another officer of SCB, who might
be in the know of the suit bonds transaction. Although, SCB took out a
Chamber Summons for examining the said Shiv Kumar as he was posted at
Singapore at the material point, the Chamber Summons was not pursued and
Shiv Kumar was not examined. Thus, according to Mr. Kapadia, there is no
F evidence worth reliance placed on record to show how the deal was struck
and the contract of the purchase of the bonds was brought about, as the
documents placed on record were hardly worth credence. That during the
cross examination of Kalyana Raman, SCB was specifically called upon to
produce on record the document showing HPD's involvement in the
....
transaction and the learned counsel for SCB stated that there were no such
G
documents in existence at all. Mr. Kapadia, therefore, submitted that no
evidence could be considered contrary to the pleadings of SCB, for which

24. AIR (1974) SC 471.

25. AIR (I 977) SC 1724.
H 26. AIR (1966) SC 405.
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, I.] 41

he strongly relied on Siddik Mohamed Shah v. Mt. Saran & Ors.r, A
Bhagatsingh & Ors. v. Jaswant Singh' 8 and Shri Venkataramana Devaru
& Ors. v. State of Mysore 29• For all these reasons, Mr. Kapadia submitted
that SCB had failed to prove that it had acquired title to the suit bonds even
on 26/27.2.1992.

Learned counsel for SCB, however, laid emphasis on the principle that B
SCB's title arises from the antecedent right of ownership of its transferor,
namely, ABFSL, about whose title there is no dispute at all. The suit bonds
are nothing but debentures within the meaning of Section 2(12) of the
Companies Act, 1956. A debenture is an actionable claim. However, Section
137 of the Transfer of Property Act exempts debentures inter alia from the C
provisions of Sections 130 to 136 of the TP Act. Thus, with respect to
debentures, there is no prescribed mode of transfer of property under the TP
Act. According to Mr. Jethmalani, an act between the transferor and
transferee is sufficient to convey all rights of ownership, except the right to
have the bonds registered, for which the requirements of the Companies Act,
D
1956 have to be followed. In his submission, the Suit and the Misc. Petition
were nothing but rival claims made for being placed on the register ofNPCL,
and the party which had legitimately acquired the ownership rights by reason
of transfer from the antecedent owner of the suit bonds, would be entitled
to be placed on the register of NPCL as the registered holder of the bonds.
His reliance on the judgment of Controller ofEstate Duty v. Godavari Bai1° E
in support of the proposition is justified. Section 9 of the TP Act recognises
even an oral transfer made in every case in which a writing is not expressly
required by law. Mr. Jethmalani submitted that the transfer in the instant case
would be valid even without execution of any kind of instrument in writing
and without actUal delivery of the suit bonds. He is justified in relying on F
the Cost Memo, which is part of the evidence, as being sufficient to evidence
the contract of transfer of the bonds, since it is signed by the transferor,
names the transferee, indicates the details of the suit bonds, the amount of
consideration, the mode of its payment and delivery of the BR as evidence
of the holding of the bonds by ABFSL on behalf of SCB. Mr. Jethmalani G

27. AIR (1930) PC 57(1).
28. AIR (1966) SC 1861.
29. AIR (1958) SC 255.
30. (1986] 2 sec 264. H
42 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A is right in his submission that this transfer has been accepted even by the .._ - ....
Special Court. Mr. Jethmalani went to the extent of contending that even
formal delivery of the original LOA was not an essential requisite to
complete the transaction so as to effectuate the transfer of property in the
suit bonds to SCB and whether the BR was duly discharged would hardly
be a material fact, since the BR does recognise SCB's right and declares that
B
the bonds were being held on behalf ofSCB. We are, therefore, satisfied that
there was transfer of the property in the suit bonds to SCB and the evidence
on record is sufficient to arrive at such a conclusion. It was wholly
unnecessary for SCB to go further and prove how the BR was discharged
and how the LOA went out of its possession, which were the facts
c emphasised on behalfof CMF. Nor was it necessary for SCB to lead evidence ..
as to how HPD had intercepted the original LOA, when and in what manner.

Turning to the argument that SCB could not be permitted to make an
argument inconsistent with the pleadings on record, we need to see an order
D dated 2. 7.1997 made by the Special Court. On that day the learned counsel
for SCB made a statement that he was not pressing for relief of monetary
claim in terms of prayer (b) of its plaint. While settling the issues between
SCB and CMF and SCB and NPCL, the learned counsel for SCB made a
statement that he would not be pressing the contention that the original LOA
had not been received by SCB. In view thereof, the Special Court did not
E permit the issue proposed to be raised by CMF on the said point. CMF
proposed another issue as to whether SCB was not aware of the circumstances
in which the original LOA was taken away from it. This issue was held by
the Special Court to be irrelevant for the purposes of the Suit on the ground
that, as the plaintiff was not pressing the contention that they have not
F received the original LOA; it was not necessary.

Mr. Jethmalani rightly contended, that when these admissions were
placed on record formally, there was no objection by CMF to these
admissions being taken on record, nor was there any challenge by CMF to
the ruling given by the Special Court, overruling the framing of the aforesaid
G two issues. In the circumstances, he submits that it is not open to CMF to
raise an objection at this stage. Apart therefrom, Mr. Jethmalani also reli~d
on Order XII Rule I of the Civil Procedure Code to contend that it is open
to a party at any time to give notice, by his pleading, or otherwise in writing,
that he admits the truth of the whole or any part of the case of any other
H party. This was precisely what happened during the trial on 2. 7.1997. Merely
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 43

because such a situation arises, the rest of the case does not get affected and A
has to be tried in accordance with law. In Bhagwati Prasad v. ChandramauP',
while dealing with the argument that it would not be open to a party to sustain
a claim on a ground which is entirely new or not pleaded, this Court rejected
the contention and held that it was a general doctrine which could not be
applied irrespective of the facts of the case on hand and observed thus (vide
paragraph 10): B

"But in considering the application of this doctrine to the facts of
the present case, it is necessary to bear in mind the other principle
that considerations of form cannot over-ride the legitimate
considerations of substance. If a plea is not specifically made and c
yet it is covered by an issue by implication, and the parties knew
that the said plea was involved in the trial, then the mere fact that
the plea was not expressly taken in the pleadings would not
necessarily disentitle a party from relying upon it if it is satisfactorily
proved by evidence. The general rule no doubt is that the relief
should be founded on pleadings made by the parties. But where the
D
substantial matters relating to the title of both parties to the suit are
touched, though indirectly or even obscurely, in the issues, and
evidence has been led about them, then the argument that a
particular matter was not expressly taken in the pleadings would be
·- purely formal and technical and cannot succeed in every case. What E
the Court has to consider in dealing with such an objection is: did
the parties know that the matter in question was involved in the trial,
and did they lead evidence about it? If it appears that the parties
did not know that the matter was in issue at the trial and one of them
has qad no opportunity to lead evidence in respect of it, that F
undoubtedly would be a different matter. To allow one party to rely
upon a matter in respect of which the other party did not lead
evidence and has had no opportunity to lead evidence, would
introduce considerations of prejudice, and in doing justice to one
party, the Court cannot do injustice to another."
G
We respectfully concur with the said observations and reject the
contention of Mr. Kapadia that SCB could not be permitted to rely on its
changed stand.

31. AJR(l966) SC 735. H
44 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A There is one minor issue with regard to the date of the letter written
by ABFSL, namely, whether it was 26.2.1992 or 27.2.1992. The evidence
....
of Kalyana Raman makes it clear that mentioning the date of the letter as
26.2.1992 was a mistake and that the actual date of the letter was 27 .2.1992.

IV. Did 5CB lose title to the suit bonds at any time before the suit was filed 7
B
A large portion of tho: impugned judgment is devoted to an analysis of
the So:curities Ledger (Exhibit-I I) and raising inferences thereupon. There
is no doubt that Exhibit- I I is a securities ledger maintained by SCB in
respect of the suit bonds. Ex facie, the Securities Ledger shows the date on
c which the transaction took place, the counterparty to the transaction, whether
the transaction was a sale or purchase. face value of the transaction, rate of
the transaction, book value, interest paid/received, profit/loss of the transaction
and the balance. The document as such does not give rise to an inference
that in any of the transactions HPD had become the owner of the suit bonds.
The Special Court, on account of a misreading of the evidence pertaining
D to the 15% arrangement, drew a conclusion from this Exhibit-I I that HPD
became the owner of the suit bonds right from 26.2.1992 and thereafter all
the transactions were those of HPD, the losses or gains being credited to the
account of HPD. We have already seen the evidence on record as to the 15%
arrangement. No part of that evidence can legitimately give rise to the
inference that in respect of securities transacted under the said arrangement,
E
any person other than SCB or the counterparty become the owner of these
securities. We have already seen that the suit bonds were purchased by SCB
legitimately on 26.2.1992 by payment of consideration to ABFSL, which fact
is even accepted by the Special Court. However, on analysis of certain
documents on record, the Special Court has come to the conclusion that on
F 9.5.1992 the suit bonds were sold by SCB to HPD. The transaction dated
9.5.1992 thus becomes crucial and has to be scrutinised to see if this
inference is correct.

The Special Court laid great emphasis on Exhibit-7 (details of SCB's
securities transactions during April 1991 - May 1992), which purportedly
G shows that on 9.5.1992 the suit bonds were sold to Andhra Bank (hereinafter
referred to as "AB"). There is also SCB's deal slip no. 10729 showing that
there was a sale of the suit bonds of the face value of Rs. 50 crores @ Rs.
91.00 to AB. According to SCB, entries in the deal slips from nos. I0727
to 10735 were sham entries made in order to account for a large amount of
H money which HPD admitted to be owed to SCB and paid up by transferring
STANDARD CHARTERED BANK"· ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 45
•• Cantriple Units worth about Rs. 205 crores. SCB's explanation is that it had A
to show in its books, the receipt of this Rs. 205 crores and, therefore, a
number of sham entries were recorded in deal slip Nos. 10727 to I 0735 and
were also indicated in Exhibit-7, AB being shown throughout as the
counterparty and all such transactions being shown as 'direct'. The learned
counsel for SCB contended that these were sham entries in order to take into
the bouks of SCB the large amount of Rs. 205 crores.
B

According to the FIR which is exhibited by CMF on record, by about
30.4.1992, the officers of SCB discovered that there had been a series of
transactions in securities conducted through HPD, as a result of which,
securities to the tune of about Rs. 3 00 erores remained unaccounted for, as c
neither securities nor BRs pertaining to them had been received by SCB. One
Ravi Iyer, Director, Local Currency Group of SCB made some preliminary
inquiry and confronted HPD about this fact. HPD admitted on 10.5.1992 to
Ra>·i Iyer that in respect ofpayments made by SCB for purchase of securities,
there was a very substantial shortfall of securities, as the securities or BRs
pe:"'...iining to them had not been handed over to SCB by HPD. HPD promised D
that be would hand over BRs/securities for the shortfall already identified
and on 11.5.1992 he delivered a letter promising to deliver further securities
to fill the gap that had been noticed. SCB had relied on the chargesheet and
recital in the chargesheet as an admission on the part of CMF, since the
charge sheet was produced as CMF's evidence. Further, there is evidence E
of M.Q. Askari (PW-3), an officer of AB in terms denying that there was
any sale or purchase transaction between SCB and AB during the period
1.5.1992 to 10.5.1992. In fact, Askari produced the purchase register of AB
in which there was no entrY showing purchase ofthe suit bonds by AB from
SCB on 9.5.1992. Mr. Jethmalani contended rightly that the evidence of
F
Askari had remained totally unchallenged, particularly with reference to the
absence of any purchase of the suit bonds by AB. Mr. Jethmalani criticised
the impugoed judgment of the Special Court as having singularly failed to
consider any part of this crucial evidence of the officer of AB. We think that
this criticism is justified. While the Special Court's inferences are based upon
its understanding of what the 15% arrangement was and its analysis of G
Exhibit-I I, it totally fails to give any reason as to why the evidence of a
witness from AB about there being no such transaction on 9 .5 .1992, backed
by the purchase register of AB, should be rejected. In our view, in the face
of the positive evidence of AB that no such transactions were there, there
was no justification for not accepting the stand of SCB that entrY dated H
46 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A 9 .5. 1992 pertaining to the suit bonds was a sham entry intended to introduce
the money into the books of SCB to cover a wide gap.

The Janakiraman Committee Report is also clinching on this issue of
the so called sale of the suit bonds on 9.5.1992 to ABFSL. Both sides have
relied on the Janakiraman Committee Report, which is admitted in evidence
B as Exhibit-18. In the Fourth Interim Report dated March 1993, in Paragraph
3. I (h) there is a discussion of this entry in the Report. The Janakiraman
Report says:

"(h) On 9.5.1992, Stanchart as per deal slip purchased units of
Cantriple of face value of Rs. 45.5 crores@Rs. 58.50 per unit from
c Andhra Bank for an aggregate cost of Rs. 266.18 crores. There is
no record of this transaction in the books of Andhra Bank nor are
there any cost memos available and no securities were received
from Andhra Bank. On the same day, Stanchart as per deal slips
sold PSU bonds aggregating Rs. 266.12 crores to Andhra Bank.
D (Refer paragraph 3.4 below). There is no record of these transactions
in the books of Andhra Bank and no securities were delivered. A
pay order No. 257131 for the difference of Rs. 0.06 crore was
prepared but not delivered to Andhra Bank. These transactions
appe3T to have been put through merely to cover up a gap in respect
of various earlier purchase deals for which neither securities nor
E BRs. were available. The details of these earlier transactions are
explained in paragrapps 3.3 and 3.4 below."

Admittedly, the Janakiraman Committee was a committee of experts
appointed by the RBI to investigate the securities scam. There is also no
F dispute that the Janakiraman Committee had full authority backed by the RBI
order and did investigate by meticulously going into the account books of
all the banks concerned, including AB. This report also supports the stand
of SCB that the entries pertaining to the sale of the suit bonds on 9.5.1992
were sham entries and that there was really no transaction of sale of the suit
bonds to AB on the said date. In the face of this evidence, it was not open
G to the Special Court to reject the story of bogus entries by merely indulging
in speculative analysis of the entries in Exhibits 7 and 11 against the
background of what it understood to be the 15% arrangement. One more fact,
which the Special Court considered as proving the genuineness of the entries
pertaining to 9.5.1992, is about the purchase ofCantriple Units deposed to
H in the evidence of Waseem Akhtar Saifi (Exhibit-14) in the previous Suit
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRJKRISHNA, J.] 47

• No. 17/94. Mr. Jethmalani criticised this finding as wholly erroneous. In the A
first place, according to him, Saifi was examined in the previous proceedings
in Suit No. 17/94 only for the purpose of showing that a letter dated
11.5.1992 written by HPD to SCB was not under coercion as alleged in that
suit. What was placed on record in the present suit by CMF was only the
cross-examination from pages 45-53 after SCB had waived formal proof and
accepted that Saifi did make such a statement. Mr. Jethmalani submitted that B
not only wa51the said evidence irrelevant, but also had been misread by the
Special Court.td arrive at an erroneous conclusion. Such evidence could be
admissible only to show what fact was sought to be proved in the previous
Suit No. 17/94 and secondly, such evidence is wholly hearsay with regard
to the transaction of Cantriple Units on 9.5.1992. He also criticised the c
finding of the Special Court as self-contradictory on this issue.

The Special Court has laid emphasis on the failure of SCB to explain
by cogent evidence how HPD got possession of the original LOA and
transfer deed. In our view, this is an irrelevant issue, although according to
the charge sheet, HPD had obtained possession of the original LOA and the D
signed transfer deed by misappropriation in conspiracy with some officers
of SCB. Mr. Jethmalani also relied on the affidavit filed by HPD before the
CLB in which he had stated that he had borrowed the suit bonds from SCB.
In our view, that affidavit has no meaning as the deponent refused to submit
himself to cross-examination and the evidence given in the affidavit was not E
tested by cross-examination. We need not delve further into the issue as we
have already stated that the issue is immaterial.

It is the stand of CMF that SCB lost its title to the suit bonds as a result
of sale of the suit bonds on 9.5.1992 as consideration for its purchase of
Cantriple Units worth Rs. 205 crores. While answering issue no. 6, the F
Special Court has clearly held that purchase of the Cantriple Units on
9.5.1992 had been proved but CMF had not been able to prove that the said
purchase was against sale of the suit bonds on 9.5.1992. In the face of this
finding, the argument of CMF that SCB lost title because it had sold the suit
bonds in lieu of which it purchased Cantriple Units, has been rejected by the
Special Court itself. G

For these reasons, we are clearly of the view that whatever might have
been the conjectures on the part of the Special Court, whatever might have
been the suspicion generated on account of sham entries made by one or the
other party, when it came to the crux of the issue, the Special Court has H
48 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A correctly answered it and negatived the case of CMF that SCB lost title of
the suit bonds because the suit bonds were sold in consideration of purchase
of Cantriple Units.

V. Did CMF get title to the Suit Bonds ?

B Finally, the question that needs to be considered is whether CMF as
defendant acquired title to the suit bonds.

It is urged on behalf of CMF on this issue that CMF is in possession
of the suit bonds, and by reason of Section 110 of the Indian Evidence Act,
1872, the presumption is that the possessor of the property is the owner
c unless SCB dislodges this presumption by showing a superior title. It is
contended that only a person with a better title than the party in possession
could succeed. Mr. Kapadia relied on the rule as to burden of proof as to
ownership under Section 110 of the Indian Evidence Act, 1872 and
contended that as far as the rule enunciated in Section 110 is concerned, it
D makes no exception with respect to incorporeal property like debts or bonds.
In his submission, while a debt may be a chose in action, the evidence of
tl:ie debt may be by way of tangible property, namely, the paper evidencing
it and, therefore, that paper would itself be a chattel to which the rule of
burden of proof in Section 110 would apply, even on the assumption that
the suit bonds were choses in action. He relied on passages in Halsbury's
E Laws of England and the discussion thereunder to show that debentures of
companies were also choses in action. 32 Relying on the same authority, he
also urged that the strictness of the common law rule against the assignment
of choses or things in action had been relaxed by various statutes.33 He,
therefore, contended that as far as transfer of the suit bonds was concerned,
F it was governed by the practice in the market, read with the provisions of
Section 108 of the Companies Act, 1956 in the light of the Notification
issued by the Central Government under Section 620 of the Companies Act,
1956, governing the transfer of the suit bonds. In the submission of Mr.
Kapadia, debentures strictly fall within the description of 'chattel personal',
and by the applicable statute, namely, the Companies Act, 1956 they have
G been made capable of being dealt with as chattel. He relied on another
passage in Halsbury's Law of England in support thereto''. Relying on

32. Fourth Edition.Vol. 6. paragraphs 6. 8(3).
33. Fourth Edition,Vol. 6. paragraphs 73.
H 34. Fourth Edition,Vol. 35, paragraphs 1204.
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVJCES LTD. [SRJKRISHNA, J.] 49

Jagdish Narain v. Nawab Said Ahmed Khan 35 he further contended that A
since the Suit is one on title, the plaintiffs could succeed only on the strength
of their own title; the defendants were not obliged to plead any possible
defects in the title and they were entitled to avail themselves of any defect
that such title showed subsequently. To similar effect were cited the decisions
of this Court in Moran Mar Basselios Catholicos and Anr. v. Most Rev. Mar
Poulose Athanasius and Ors. 36 ; Brahma Nand Puri v. Mathra Puri and B
Anr. 37 and L.J Leach and Co. Ltd. and Anr. v. Messrs. Jardine Skinner
and Co. 38 Strong reliance was also placed on the observations of this Court
in Chuharmal Takarmal Mohnani v. Commissioner of Income Tax 39 in
relation to Section 110 of the Indian Evidence Act, 1872.

Rebutting these arguments, Mr. Jethmalani contends that Section 110
c
is contained in Chapter VII of the Indian Evidence Act, 1872, which deals
with the burden of proof. As a matter of fact, Section 110 merely enunciates
the burden of proof as to ownership. He rightly submits that any rule of
burden of proof is irrelevant when the parties have actually led evidence and
that evidence has to be considered. Reliance is placed by him on Sita Ram D
Bhau Patil v. Ramchandra Nago Patil and Anr. 40 for the proposition that
when the entire evidence is before the court, the burden of proof becomes
... immaterial. Even assuming that the rule of burden of proof in Section I I0
is relevant, Mr. Jethmalani contended that Section 110 would be applicable
only to a 'thing', which is capable of being possessed. He rightly submits E
that a chose in action is not a 'thing', as, by definition, it is not in the
possession of someone, but that possession has to be acquired by some action
which is why it is ·called a chose in action. He rightly distinguished the
judgment of this Court in Chuharmal Ta karma/ (supra) as wholly inapplicable
to a situation of a chose in action. In the said judgment, the possession was
with respect to certain wrist watches, which were obviously not choses in F
action. According to him, Secti.on 137 of the TP Act makes Section 132
inapplicable to debentures but the principles of common law and equity must
• surely govern even such transactions of transfer of debentures .

35. AIR 33 (1946) PC 59.
G
36. AIR (1954) SC 526.
37. AIR ( 1965) SC 1506.
38. AIR (1957) SC 357.
39. AIR (1988) SC 1384.
40. [1977] 2 sec 49 H
50 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A Mr. Jethmalani further contended that although the suit bonds were
excluded from the definition of 'goods' under Section 27 of the Sale of
Goods Act, 1930 and Section 27 does not apply to the situation, the general
rule of transfer of property, that a transferee acquired no better title than the
transferor, holds good and applies even in the case of the suit bonds. Thus,
according to Mr. Jethmalani, in a situation like this, where there is a defect
B in the title of the antecedent transferor, the transferee got no title. Jn his
submission, the general principle of the legal maxim nemo dat quad non
habet must govern all transactions. Relying on the judgment of the Chancery
Division in France v. Clark'1, he contended that this rule is not derogated
from under Section I 08 of the Companies Act, 1956. The provisions of the
c Companies Act, 1956 for registration in the name of a transferee merely give .....
complete effect, provided there is already a prior valid transferor. A mere
registration cannot effectuate a document which was, as between the alleged
transferor or transferee, inoperative and of no effect. Relying on the
judgment of the Chancery Division (supra) he contended that even when a
blank transfer form is signed, there is no notice that the transferor is the
D owner and if the circumstances are such that the transferee is put on enquiry
as to the bona fldes of the transfer or the circumstances are such that the

-
transferee must be deemed to have been put on such enquiry, then the
transferee would not be a purchaser for value without notice of defect in the
title of the transferor. He contended that even assuming CMF came into
E possession of the original LOA of the suit bonds together with blank transfer
deeds, there would be clear notice that the transfer deeds were signed by
someone other than the original owner of the suit bonds; if CMF had made
the slightest enquiry, it would have learnt that the original owner (SCB), was
not intending to transfer them to CMF. Thus, in his submission, CMF cannot
be said to be a purchaser for value without notice. At all points of time, it
F had notice that whoever was delivering the original LOA with the blank
transfer deed was not a person with full title to the suit bonds. Referring to
the defence of CMF, he contended that CMF initially took the stand that the
suit bonds had been acquired by it from ABFSL through HPD, subsequently
•
changed its stand and alleged that HPD must have acted as a broker either
G for ABFSL or for SCB or on his own behalf According to Mr. Jethmalani,
this is a situation where CMF is unable to say as to who was the person with
the antecedent title who could have transferred the title to CMF for bona fide
purchase for value without notice. He criticised the impugned judgment of
the Special Court for brnshing aside the principle in France v. Clark (supra)

H 41. 1884 Vol. 26 C'h.0. 257.
STANDARD CHARTERED BANK'· ANDHRA BANK FINANCIAL SERVICES LTD. [SRJKRISHNA,J] 51

on the ground that HPD was the owner of the suit bonds. He pointed out A
that the principle in France v. Clark (supra) has been reiterated and applied
in India also and has been followed in V.S. Venkata Subbiah Chetty v. A.
Subha Naidu and Ors. 42 and Govt. of the United States of Travancore and
Cochin v. Bank of Cochin Ltd 43 • Jn his submission, a transferee of an
actionable claim gets no better title than that of the transferor and he would
'take it subject to all the liabilities and equities to which the transferor was B
subject. On the basis of the pleadings of CMF, it acquired the right to the
suit bonds from HPD. HPD could not confer a better title than he himself
had to the suit bonds. It is the case of SCB that HPD had got the bonds by
theft, misappropriation or some other offence and, hence, it could not pass
any title to CMF. He, therefore, contended that even if the case of CMF is c
to be accepted, CMF got no title to the suit bonds.

The only exception would be the case of a bona fide purchaser for value
without notice. He seriously questioned both the bona jides and lack of
notice, on the part of CMF. He contended that the so called acquisition of
the suit bonds by CMF was neither bona fide nor was CMF a purchaser for D
value, as no consideration had been paid by CMF and, in any event, CMF
had or ought to have had notice of the lack of title on the part of its antecedent
title holder.

Impugning the bona jides of the transaction by which CMF claimed
to have acquired the suit bonds, Mr. Jethmalani points out that although CMF
E
took up the initial stand that the suit bonds had been purchased from ABFSL,
it later shifted its stand. In its petition before the CLB, CMF claimed that
it had purchased the suit bonds from ABFSL by paying it consideration. In
its written statement in the Suit, CMF took up the stand that it had purchased
the suit bonds from HPD, who was acting on behalf of ABFSL or SCB. In F
its supplementary written statement, it contended that it bought the bonds
from HPD acting for himself or ABFSL or SCB. Learned counsel contended
that such a plea coming from a financial institution, which had entered into
a transaction worth about Rs. 45 crores was utterly absurd and unbelievable.
At no point of time did CMF state on record as to what was the representation
made by HPD when he allegedly sold the suit bonds to CMF on 27 .2. I 992.
G
It was not as if ABFSL was an unknown party, for the record shows that
there were at least 23 transactions between CMF and ABFSL in November

42. AIR (1916) MADRAS 242.
43. AIR (1954) TRA-CO 243 (FB). H
52 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A 1991 and 4 transactions even on 27 .2.1992. Even after HPD filed his affidavit
alleging that the suit bonds had been 'lent' by SCB, CMF did not care to
deny the contents of HPD's affidavit. As a banker, CMF knew that no
transaction in securities could take place without a cost memo, or some other
kind of documentation. This was a case where CMF has been unable to
produce any credible documentation to support its plea that the suit bonds
B were purchased from/through HPD on 27 .2.1992. A document relied upon
as evidencing the alleged transaction is the letter dated 27.2.1992 issued by
HPD to CMF in which he had asked for a bankers' cheque in the sum of
Rs. 46,01,23,287.67 in favour of AB. The deal slip pertaining to this
transaction bearing date 27 .2.1992 showing that the suit bonds of the value
c of Rs. 50 crores had been bought from ABFSL through HPD, was an internal
document of CMF suggesting purchase of the suit bonds from ABFSL
through HPD as broker. Thus, the evidence led by CMF was that it had
bought the suit bonds from ABFSL with HPD as the broker. At no point of
time did it seek or obtain a cost memo for this transaction. R.V. Shenoy (PW-
2). ABFSL 's employee, denies that any such transaction had taken place by
D which the suit bonds were sold by ABFSL to CMF with HPD as a broker
or otherwise, and there is no cross-examination on this aspect. Interestingly,
even the Special Court does not hold that there was any transaction on
27 .2.1992 in which CMF had bought the suit bonds from ABFSL. The
Special Court glossed over the matter by stating that the 15% arrangement
E made HPD the owner of the suit bonds and, therefore, it was a transaction
between HPD and CMF.

No evidence was led by CMF as to which employee of CMF had
transacted the deal in which the suit bonds were purchased from ABFSL
ostensibly, through 1-!PD as the broker, on 27.2.1992. Affidavit of one Satish
F wariiled as a witness of CMF who claimed knowledge about the transaction,
but the said Satish was not examined. The only witness of CMF, Nandita
Rao, frankly admitted that she had no personal knowledge of the suit
transaction whatsoever. No other documents were produced by CMF to show
that such a transaction was entered into between itself and ABFSL with 1-!PD
as the broker, as a result of which it came into possession of the suit bonds
G
as an owner. It is impossible to believe the story of CMF that, a financial
institution could have entered into a deal of such magnitude without a scrap
of document. That is the reason why even the Special Court does not hold
that there is any evidence on record from which a conclusion can be drawn
in favour of CMF acting bona fide. The evidence on record does not appear
H
...
I
..

STANDARD CHARTERED BANK'" ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 53

to support the story of CMF that it had entered into a contract under which A
it purchased the suit bonds from ABFSL on 27 .2.1992 with HPD as the
broker.

Mr. Kapadia, learned counsel for CMF, relied on the judgment of a
• learned Single Judge of the Bombay High Court in Fazal D. Allana v.
Mangaldas M Pakvasa" in support of his contention that, it is common B
practice in the share market that shares are transferred by mere delivery with
a transfer deed signed in blank and that in such a situation there was no
question of CMF being put to notice that there was anything irregular in the
LOA of the suit bonds delivered to CMF by a transfer deed signed in blank
by ABFSL. He, therefore, contends that this was a bona fide transfer C
consistent with the market practice. As a result of the Bombay High Court
judgment, the authority of France v. Clark (supra) was shaken, is the
submission of the learned counsel. Relying on the judgment of this Court
in Vasudev Ramchandra She/at v. Pranlal Jayanand Thaker and Ors. 45 it
is pointed out that a transfer of property in securities, which is recognised
by the TP Act, may be antecedent to the actual vesting of all or the full rights D
of ownership of shares and exercise of the rights of a shareholder in
accordance with the provisions of company law. The antecedent transfer of
title in the security results in the equitable right of the transferee to be
registered by the company. Learned counsel contended that as a result of
delivery of the original LOA accompanied by the blank transfer deed, CMF E
acquired ownership rights including the equitable right as against NPCL to
have its name registered as the owner. Strongly refuting the argument of Mr.
Jethmalani, Mr. Kapadia contended that since delivery of securities
accompanied by a blank transfer deed was a common practice in the trade,
there was no occasion for alarm bells ringing merely because the original
LOA accompanied by blank transfer deed was delivered to CMF. In our F
view, notwithstanding the market practice of delivery of securities
accompanied by a signed blank transfer deed, the property in the securities
' , .. can only be transferred if there is bona fide purchase of the same for value.
The crucial question in the present case is: did CMF purchase the suit bonds
for value from the antecedent title holder?
G
This brings us to the last limb of the argument of Mr. Jethmalani that
CMF can never be said to be a purchaser for value, as there is no evidence

44. AIR (1922) BOMBAY 303.
45. AIR (1974) SC 1728. H
.
54 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A to show that any consideration was paid by CMF for acquisition of the suit ....
bonds.

When the matter was first tried by Variava, J. as the Special Court, the
learned counsel appearing for CMF categorically admitted that there was no
evidence by which it could be established that CMF had paid consideration •
B for acquisition of the bonds. It is true that this judgment was subsequently
set aside by this Court and the matter was remanded for trial along with the
Misc. Petition. But this is a significant fact which the Special Court could
not have overlooked in appreciation of the evidence.

c and theThe17%
stand taken by CMF is that on 27 .2.1992 it purchased the suit bonds
NPCL bonds for a total sum of Rs. 46,01,23,287.67, of which,
Rs. 46 crores was the purchase: price and Rs. 1,23,287.67 was the accrued
interest on the bonds for one day i.e. from 26.2.1992 to 27 .2.1992. CMF
claimed that the consideration for acquisition of the suit bonds and 17%
NPCL bonds w.::s paid by two sales of 13% NLC bonds and 13% MTNL
D bonds. In other words, according to CMF, there were two purchases and two
sales on 27 .2.1992. CMF alleged that on 20.11.1991 there were 19 sales and
four purchases. The four purchases included the 13% NLC bonds and 13%
MTNL bonds, which fonned part of the consideration for purchase of the
suit bonds on 27.2.1992. The evidence in support of its alleged purchase of
13% NLC bonds and 13% MTNL bonds is again somewhat convoluted. The
E Special Court held that out of the so called 19 sales alleged on 20.11.1991,
I0 had been proved by the evidence led by CMF and jumped to the
conclusion that thereby all 19 must be taken to have been proved. The
Special Court observes: "The important point which the Court has to bear
in mind is whether the Court should reject all the I0 sales which stands
F proved because the remaining 9 sales could not be proved. The answer is
in the negative. The evidence in the form of7 BRs; the evidence in the form
of Andhra Bank Purchase Register, the evidence in the form of Andhra Bank
Sale Register, and the evidence: in the form of Exhibit-H as well as the
evidence of PW-2 cannot be thrown overboard as bogus. These I0 transactions,
as proved, shows that CMF is right in saying that they had sales on
G 20.11.1991 with HPD who had received the securities from CMF. In the
circumstances, I hold that payment of consideration for four purchases dated
20.11.199 l stands proved.'' This finding, in our view, is wholly untenable.
There is no warrant for the conclusion that if some transactions are proved,
all transactions on th.: same day are to be held to be proved.
H
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 55

..:. Having erroneously held thus, the Special Court finds that after
adjusting the transactions, there was a netted amount of Rs. 3,87,46,575.35
A
which was payable by HPD to CMF, which was paid to CMF as evidenced
by HPD's letter dated 26.2. 1992 giving instructions to AB to pay the amount
to CMF and debit the aforesaid amount to his account.

Mr. Jethmalani justifiably criticised these findings of the Special Court.
B
In the first place, the transactions of 20.11.1991 and the transactions of
27.2.1992 appear to between CMF and HPD. Assuming they are proved, as
held by the Special Court, and the netted amount of Rs. 3,87,46,575.35 w~s
paid by HPD to CMF, it does not prove that the consideration of the suit
bonds was paid to ABFSL/SCB, who alone could have been the antecedent c
owner of the suit bonds. It is the erroneous inference of the Special Court
that HPD had become the owner of the suit bonds that has misdirected it into
assuming that CMF had paid considerations for purchase of the suit bonds.
There is merit in this contention. One of the documents relied upon in support
of the story of sales made on 20. 11.1991 is a letter from HPD dated D
20.11.1991 addressed to the Manager, AB advising him to issue a bankers'
cheque in favour of CMF for Rs. 2, 75, 18,571.04. CMF's witness, Nandita
Rao (DW-1), was specifically asked in cross-examination as to how much
of the amount was payable by CMF to ABFSL as a result of the transactions
dated 20. 11.1991. She answered that it was an amount of Rs. 21,77,01,565.98
E
and claimed that it was the difference between the amount paid and received.
She also stated that, in addition to the aforestated amount, an amount of Rs.
4,75,55,205.51 also became payable as sundry creditors. She also stated that
she had arrived at the figure after taking into account all the purchases and
sales of 20.11.1991 and also from the RBI Cash Book. Thus, according to
the evidence led by CMF, CMF had to pay to ABFSL on 20.11.1991 a large F
sum as a result of their deals which took place on 20.11.1991. Surprisingly,
instead of CMF paying ABFSL the aforesaid amount, on the same day, two

" sums of Rs. 2,75,18,571.04 and Rs. 4,56,70,000.00 as evidenced by letter
dated 20.11.1991 written by HPD to AB, came to be paid to CMF by HPD.
It is evident that some of the existing documents with regard to various deals G
have been put together by CMF to patch up the story of consideration put
forward by it.

Another strange document which shakes the credibility of the story of
consideration set up by CMF is the Jetter dated 26.2.1992 from HPD to AB
H
56 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A instructing AB to issue a bankers' cheque in favour of CMF for a sum of
Rs. 3.87,46,575.35 and debit his account. The actual number of the cheque
....
...
is abo shown on the document as 143941 dated 27.2.1992. There is also a
statement of the RBI account of HPD with AB showing the debit of the
aforesaid amount to the books of HPD in AB. The Special Court relies on
this letter as evidencing the netting of the transactions between CMF and
B HPD on 27.2.1992. Mr. Jethmalani legitimately criticised the story of
consideration put forward by CMF by urging that, if the aforesaid amount
of Rs. 3,87.46.575.35 was the amount after netting. which had been arrived
at on 27.2.1992. it was impossible to believe that HPD had the prescience
on 26.2.1992 to know the exact amount that would be arrived at after netting
c of transactions including the purchase of the suit bonds on 27 .2.1992.
Although, SCB raised this point in the argum.:nts and pointed out that this
letter belies the stand of CMF, the Special Court brushed it aside by saying
that it did not find any merit in the argument and observing: "merely because
letter is oated 26.2.1992 one cannot assume that HPD knew about the
0 transactions one day prior to 27.2.1992. The n:mark indicating pay order
number and the date of27.2. l 992 shows that the instructions were specifically
given on 27.2.1992." Moreover, if we accept the finding of the Special Court
that the transaction of the suit bonds between HPD and CMF on 27.2.1992
did take place. then there is no explanation for the suit bonds being sold to
and purchased from other parties during the period 27.2.1992 to 9.5.1992
E as shown in Exhibit-I I.

The pleadings of CMF on the issue of consideration appear to be most
confusing and shifty. The exercise carried out by the Special Court of
analysing several transactions and discharge of BRs. shows transactions of
F payments back and forth between CMF and HPD. The ledger folio produced
by CMF in support of its stand is also hardly reliable. The ledger entry
pertaining to the purchase of l 3% NLC bonds discloses a very curious state
of affairs. The entry pertain mg to 20.11.199 l is hand written after the entry
of 30. l l. 199 l. When the witness of CMF, Nandita Rao (DW-l ), was cross-
examined as to how the entry of20.l l.1991 could have been written in the
G ledger folio after the entry of 30. l l.1991, she had hardly any explanation
for that except professmg ignorance. The said witness was also asked as to
whether she came across any document from ABFSL ir. support of the
transact10ns of 20. 11.1991 on the ba~is of which she had prepared the
vouchers and ledger entries. She admitted that she had not seen any
H document from ABFSL on the basis of which such entries were made. Under
STANDARD CHARTERED BANK"· ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRJSHNA, J.] 57

cross-examination, the said witness also stated that she did not remember A
whether any documents were received from ABFSL in support of the four
general vouchers dated 27 .2.1992 and she further admitted that, irrespective
of whether a cheque was received or not, it was a routine practice to write
"RBI cheque received from ABFSL" in the transactions with ABFSL.
Considering the evidence as a whole, it appears that the initial stand taken
by the learned counsel of CMF in the first round of the litigation, that there B
was no credible evidence on which payment of consideration by CMF could
be proved, was fully justified. The attempt of CMF on picking up and putting
forward some of the documents, out of the several transactions entered into
by them to patch up the story of consideration, in our opinion, has miserably
failed, There was no cause for being charitable to CMF by saying that they c
could prove only a part of the consideration, ergo, rest of the transactions
must be deemed to have been proved. We are of the view that every one
of the arguments put forward by SCB to impugn the story of CMF that it
had paid consideration is justified and the Special Court was wrong in
rejecting the arguments of SCB on this count. We, therefore, hold that CMF
has utterly failed to prove its story that it had paid consideration for purchase D
of the suit bonds on 27 .2.1992.

Conclusion:

Finally, it appears that there is not much to choose between the two E
contending banks, namely, SCB and CMF. Both the banks have been tarred
by the same brush by the Janakiraman Committee Report about fudging their
accounts. However, it appears to us that the issue of the ownership of the
suit bonds could not have been decided on any basis other than what the legal
evidence showed. The situation is somewhat like a game of musical chairs;
the one who is sitting on the chair when the music stops, wins, Similarly, F
the situation before us. Once we eliminate the conjectural findings, we find
that all the material evidence on record shows that SCB had purchased the
suit bonds from NPCL by paying good money. The original LOA for
purchase of the suit bonds along with the transfer deed was handed over to
SCB. As to how it went out of its possession, it appears to be the subject G
matter of the FIR filed by SCB. SCB alleges that, it was pilfered or
misappropriated by some officer in conspiracy with HPD, but that is a matter
which will be tried by an appropriate criminal court.

Turning to the other side of the story, CMF claims acquisition of the
suit bonds on 27 .2.1992 by paying consideration for them. It is not shown H
58 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A as to w110 was the counter-party from whom the purchase was made, as
CMF's stand on its counter-party keeps changing from beginning to end. The
documents produced on record do not bear out the stand of CMF. In spite
of exercise of our imagination, we are not able to support the conclusion that
CMF had paid consideration for acquisition of the suit bonds from HPD; or
that HPD became the owner of the suit bonds merely because of the existence
B of the 15% arrangement, the details of which were thoroughly analysed by
the Janakiraman Committee Report and the Joint Parliamentary Committee
Report. That such an agreement was not against public policy was clearly
held by the previous judgment of this Court in Civil Appeal No. 4456/95 40 .

c provesIn these circumstances, we are not satisfied that the evidence on record
that HPD became the owner of the suit bonds or that CMF
legitimately acquired the suit bonds from HPD or any other person by paying
bona fide purchase value for them. Consequently, we must hold that CMF
acquired no right, whatsoever, to the suit bonds. The suit bonds always
remained the property of SCB irrespective of how they found their way into
D the hands of CMF.

In the result, we allow both the appeals and set aside the impugned
judgments of the Special Court in Special Court Suit No. 11196, and Special
Court Misc. Petition No. 81/95 and hold that SCB as the owner of the suit
bonds is entitled to be registered as such in the register ofNPCL. Consequently,
E the Suit is decreed in terms of the prayers in Civil Suit No. 3808/92 and Misc.
Petition No. 81/95 is dismissed.

Considering that both parties are in pari delicto in the matter of fudging
their accounts and indulging in transactions which have facilitated the
F securities' scam, we do not think it fit that SCB should be awarded costs,
although it has succe~ded in the appeals.

The appeals are accordingly allowed with no order as to costs.

v.s.s. Appeal Allowed.
G

H 46. 120021 10 sec 697.