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

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.

11Copy pinpoint11. AIR (1994) SC 853. G

12Copy pinpoint12. AIR (2003) SC 4630.

13Copy pinpoint13. AIR (1915) PC 96.

14Copy pinpoint14. AIR (1967) SC 1134.

15Copy pinpoint15. AIR (1988) SC 1074.

16Copy pinpoint16. AIR (1917) PC 6. H

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 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 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 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 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

17Copy pinpoint17. . [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 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 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."

18Copy pinpoint18. 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 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 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

19Copy pinpoint19. AIR 1964 SC 152 paras 19, 20.

20Copy pinpoint20. Vol. 15, p. 243, para 451.

21Copy pinpoint21. 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 The force of the words "belonging to any person notified" used in sub- section (3) 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 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 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 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 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 Learned counsel for CMF contended that even as on 26.2.1992 SCB had no 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 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 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 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 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 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

22Copy pinpoint22. AIR (1974) SC 1728 ..

23Copy pinpoint23. 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 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 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 documents in existence at all. Mr. Kapadia, therefore, submitted that no evidence could be considered contrary to the pleadings of SCB, for which

24Copy pinpoint24. AIR (1974) SC 471.

25Copy pinpoint25. AIR (I 977) SC 1724.

26Copy pinpoint26. 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

27Copy pinpoint27. AIR (1930) PC 57(1).

28Copy pinpoint28. AIR (1966) SC 1861.

29Copy pinpoint29. AIR (1958) SC 255.

30Copy pinpoint30. (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 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 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 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 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 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 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.

31Copy pinpoint31. 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 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, 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 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 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 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 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 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 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 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 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 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 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 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 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, 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 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

32Copy pinpoint32. Fourth Edition.Vol. 6. paragraphs 6. 8(3).

33Copy pinpoint33. Fourth Edition,Vol. 6. paragraphs 73.

34Copy pinpoint34. 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 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 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 .

35Copy pinpoint35. AIR 33 (1946) PC 59. G

36Copy pinpoint36. AIR (1954) SC 526.

37Copy pinpoint37. AIR ( 1965) SC 1506.

38Copy pinpoint38. AIR (1957) SC 357.

39Copy pinpoint39. AIR (1988) SC 1384.

40Copy pinpoint40. [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 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 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 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 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)

41Copy pinpoint41. 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 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 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

42Copy pinpoint42. AIR (1916) MADRAS 242.

43Copy pinpoint43. 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 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 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

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 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 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 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 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

44Copy pinpoint44. AIR (1922) BOMBAY 303.

45Copy pinpoint45. 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.

The stand taken by CMF is that on 27 .2.1992 it purchased the suit bonds c and the 17% 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 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 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 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 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 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 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 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 of the suit bonds on 27 .2.1992.

Conclusion:

Finally, it appears that there is not much to choose between the two 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 In these circumstances, we are not satisfied that the evidence on record proves 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

46Copy pinpoint46. 120021 10 sec 697.