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Unauthorized Adjustments not valid – Defendant No. 1, the Hongkong & Shanghai Banking Corporation Ltd., a Company incorporated under the laws of Hong Kong, aggrieved by the judgment and decree dated 30th of June, 2004 passed by the Special Court (Trial of Offences relating to Transaction in Securities), Bombay in Suit No. 11 of 2002 decreeing the plaintiff’s suit for a sum of Rs. 18,59,71,808.22/- along with interest at the rate of 15% has preferred this appeal.= Plaintiff Canbank Financial Services Ltd., respondent no. 1 herein filed the suit seeking a decree directing defendant no. 1 to pay to the plaintiff a sum of Rs.33,13,42,781.62/- with further interest thereon at the rate of 24% per annum compounded quarterly from the date of the suit till realization. It is the assertion of the plaintiff that defendant no. 1 was not justified in adjusting the amount paid by the plaintiff for purchase of bonds towards transactions between defendant no. 1 and Canbank Mutual Fund. The plaintiff has alleged that the transaction between defendant no. 1 and Canbank Mutual Fund are totally unconnected with the transaction between plaintiff and defendant no. 1. Whether Defendant prove that the said pay order for Rs. 18,59,71,808.22 was issued by Plaintiffs on behalf of CMF as alleged in para 8 of Written Statement?” whether defendant no. 1 has established that the payment that was made by the plaintiff to it on 24th of June, 1991 was on behalf of the Canbank Mutual Fund? – It is the specific case of defendant no. 1 that the broker informed it that the plaintiff has made payment on behalf of Canbank Mutual Fund. However, the letter dated 25th of February, 1993 of the broker to defendant no. 1 shows that on 24th of June, 1991 the Coal India bonds were sold by defendant no. 1 to the plaintiff and not to Canbank Mutual Fund. From the aforesaid it is evident that defendant no. 1 has not been able to prove that payment was made by the plaintiff on behalf of Canbank Mutual Fund. The natural corollary thereof is that the payment was made by the plaintiff to defendant no. 1 to purchase the bonds. It is not the case of defendant no. 1 that it had delivered the bonds to the plaintiff. Therefore, we are in agreement with the reasoning and the conclusions arrived at by the trial court and find no reason to interfere with the same.

  published in     http://judis.nic.in/supremecourt/imgst.aspx?filename=40557 

NON-REPORTABLE

 
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5281 OF 2004

 

 
HONGKONG & SHANGHAI BANKING CORPN. LTD. APPELLANT
VERSUS
CANBANK FINANCIAL SERVICES LTD. & ANR. RESPONDENTS

 
JUDGMENT

 
CHANDRAMAULI KR. PRASAD,J.

 

 

Defendant No. 1, the Hongkong & Shanghai Banking
Corporation Ltd., a Company incorporated under the laws of Hong
Kong, aggrieved by the judgment and decree dated 30th of June,
2004 passed by the Special Court (Trial of Offences relating to
Transaction in Securities), Bombay in Suit No. 11 of 2002
decreeing the plaintiff’s suit for a sum of Rs. 18,59,71,808.22/-
along with interest at the rate of 15% has preferred this appeal.
Plaintiff Canbank Financial Services Ltd., respondent no. 1
herein filed the suit seeking a decree directing defendant no. 1
to pay to the plaintiff a sum of Rs.33,13,42,781.62/- with further
interest thereon at the rate of 24% per annum compounded quarterly
from the date of the suit till realization. According to the
plaintiff, it is a Company incorporated under the Companies Act
and a subsidiary of Canara Bank. Plaintiff has averred that it is
engaged in the business of providing financial and management
consultancy services and trading in Government and public sector
securities and bonds. In course of business the plaintiff buys
and sells Government and public sector bonds and securities in
accordance with the guidelines issued from time to time by the
Reserve Bank of India. The plaintiff’s case is that on 24th of
June, 1991, it purchased from defendant no. 1, through a broker
M/s. Naresh K. Aggarwala, Coal India bonds of the face value of
Rs. 18 crores. The broker issued a contract note of the same
date. The plaintiff, in order to obtain from bank a pay order in
favour of the seller, gave a cheque in favour of the said bank.
Accordingly, the Canara Bank issued a pay order favouring
defendant no. 1, for a sum of Rs. 18,59,71,808/- specifically
mentioning that the pay order is on account of the plaintiff
Canbank Financial Services Ltd. The plaintiff’s case further is
that during the reconciliation of the securities account in or
about September, 1994, the plaintiff found that the Coal India
bonds purchased by it from defendant no. 1 on 24th of June, 1991
have not been received by them. Accordingly, plaintiff wrote a
letter dated 1st of October, 1992 to defendant no. 1 for delivery
of the bonds or to refund the amount paid by it. According to the
plaintiff, defendant no. 1 acknowledged the receipt of the
aforesaid amount by Canara Bank pay order but asserted that it was
for settlement of Canbank Mutual Fund bank receipt No. 2214 issued
by them in its favour on 8th of May, 1991. It is the assertion of
the plaintiff that defendant no. 1 was not justified in adjusting
the amount paid by the plaintiff for purchase of bonds towards
transactions between defendant no. 1 and Canbank Mutual Fund. The
plaintiff has alleged that the transaction between defendant no.
1 and Canbank Mutual Fund are totally unconnected with the
transaction between plaintiff and defendant no. 1.
On the aforesaid pleadings, the plaintiff filed the suit
seeking the relief aforesaid on its assertion that the action of
defendant no. 1 by adjusting the amount paid by the plaintiff
towards payment allegedly due to defendant no. 1 from Canbank
Mutual Fund is totally unauthorized.
The defendant no. 1 contested the suit and its plea in the
written statement is that on 8th of May, 1991, through a broker
M/s. Naresh K. Aggarwala, defendant no. 1 purchased Coal India
bonds of the face value of Rs.18 crores from Canbank Mutual Fund
and paid to it an amount of Rs.18,05,64,657.53/-. Defendant no. 1
received from Canbank Mutual Fund bank receipt No. 2214 promising
to deliver securities purchased by the plaintiff from the Canbank
Mutual Fund. The plea of defendant no. 1 further is that on 24th
of June, 1991 it sold the same securities to Canbank Mutual Fund
and in consideration, received a cheque from Canara Bank for Rs.
18,59,71,808.22/-, which is the principal trustee of Canbank
Mutual Fund. Further plea of defendant no. 1 is that along with
the pay order defendant no. 1 did not receive any covering
letter. Defendant no. 1 has further averred that after receiving
the pay order, acting on instructions received from the broker, it
handed over the bank receipt to the said broker for onward
delivery to the Canbank Mutual Fund. It is claimed by defendant
no. 1 that for transaction dated 24th of June, 1991 the broker has
issued a contract note to defendant no. 1 who by letter dated
30th of October, 1992 confirmed that he had received the bank
receipt No. 2214 issued by Canbank Mutual Fund from defendant
no. 1 and handed over that receipt to Canbank Mutual Fund.
Although defendant no. 1 admits that broker had informed him that
the pay order dated 24th of June, 1991 was issued on account of
plaintiff, the said payment had been made by it with a clear
understanding and arrangement between the plaintiff and the
Canbank Mutual Fund that the bonds would be delivered by Canbank
Mutual Fund to the plaintiff on account of the money having been
paid by the plaintiff to said defendant. Therefore, according to
defendant no. 1, the liability to deliver the securities to the
plaintiff is that of Canbank Mutual Fund and not of defendant no.
1. It is the case of defendant no. 1 that there was no
transaction between it and plaintiff for purchase of any
securities on 24th of June, 1991.
On the basis of the pleadings the trial court framed a
large number of issues including the following issue with which we
are concerned in the present appeal:
“3) Whether Defendant prove that the said pay order
for Rs. 18,59,71,808.22 was issued by Plaintiffs on
behalf of CMF as alleged in para 8 of Written
Statement?”

 
On the basis of the pleadings and the evidence, the trial
court recorded a finding that the plaintiff has proved that on
24th of June, 1991 it had bought the securities through the broker
Naresh K. Aggarwala. The trial court also recorded a finding that
the payment was made by the plaintiff to defendant no. 1 of the
purchase price relying on the pay order which shows that Canara
Bank issued the pay order on account of the plaintiff. All these
findings are based on material on record and, in fact, can not
legitimately be questioned. The main defence of defendant no. 1
is that there was understanding between the plaintiff and Canbank
Mutual Fund and, in fact, the payment was made to it by the
plaintiff on behalf of the Canbank Mutual Fund. Thus, defendant
no. 1 accepts receipt of the payment by a pay order on account of
the plaintiff. However, its assertion is that the payment was
made to it by the plaintiff on behalf of the Canbank Mutual Fund.
In view of this assertion, the only question which falls for
consideration is as to whether defendant no. 1 has established
that the payment that was made by the plaintiff to it on 24th of
June, 1991 was on behalf of the Canbank Mutual Fund?
Mr. C.A. Sundaram, Senior Counsel appearing on behalf of
defendant no. 1-appellant submits that on 24th of June, 1991, the
appellant received the payment and the broker informed it that the
payment had been made by the plaintiff on behalf of Canbank Mutual
Fund. Once this is established, the case of the plaintiff would
fail. Ms. Sunita Dutt, Counsel appearing on behalf Canbank
Financial Services Ltd., plaintiff-respondent no. 1, however,
submits that it is a separate legal entity so also the Canbank
Mutual Fund and it is established that as the amount was paid by
the plaintiff for purchase of the securities, defendant no. 1 was
obliged to deliver the securities or to refund the amount to the
plaintiff.
We have bestowed our consideration to the rival
submission and we do not find any substance in the submission of
Mr. Sundaram. It is the specific case of defendant no. 1 that
the broker informed it that the plaintiff has made payment on
behalf of Canbank Mutual Fund. However, the letter dated 25th
of February, 1993 of the broker to defendant no. 1 shows that on
24th of June, 1991 the Coal India bonds were sold by defendant
no. 1 to the plaintiff and not to Canbank Mutual Fund. From
the aforesaid it is evident that defendant no. 1 has not been
able to prove that payment was made by the plaintiff on behalf
of Canbank Mutual Fund. The natural corollary thereof is that
the payment was made by the plaintiff to defendant no. 1 to
purchase the bonds. It is not the case of defendant no. 1 that
it had delivered the bonds to the plaintiff. Therefore, we are
in agreement with the reasoning and the conclusions arrived at
by the trial court and find no reason to interfere with the
same.
In the result, we do not find any merit in the appeal and
it is dismissed accordingly, but without any order as to costs.

 

 

 
………………………………………………………………J.
(CHANDRAMAULI KR. PRASAD)

 
………..……….………………………………..J.
(V.GOPALA GOWDA)

 
NEW DELHI,
JULY 15, 2013.

 

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11

 

 

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