Bombay High Court
The Amravati Peoples Coop. Bank ... vs M/S Giltedge Management Services ... on 7 April, 2021
Bench: A.S. Chandurkar, Pushpa V. Ganediwala
FA361.10(J) 1/53
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR.
FIRST APPEAL NO. 361 OF 2010
The Amravati Peoples' Co-operative
Bank Ltd.
Cosmos Co-operative Bank Ltd.
Through its The Managing Director,
Cosmos Height, 269/270,
Shanwarpeth, Pune ... Appellant
Orig.Plaintiff.
-vs-
1. M/s Giltedege Management Services Ltd.
Through its Director/Chief Executive Officer/
Authorised signatory Ketan Kantilal Seth,
aged about 40 years, having its Registered
office at 103, Liberty Apartment,
80-A Sarojini Road, Vile Parle (West)
Mumbai 400 056
2. Ketan Kantilal Seth,
aged about 40 years, occupation business,
resident of 193, Lalit Kutir Co-op.
Housing Society, Gulmohar Cross Road No.9,
JVPD Scheme, Andheri (West),
Mumbai 400 049
3. M/s Century Dealers Pvt. Ltd. By its
Director/Chief Executive Officer/Authorised
signatory Mahendra Radheshyam Agrawal,
aged about 36 years, occupation business,
having its Registered office at 45-A Adoya
Sandhya Ghai Road, Calcutta 700 001 and
also having its office at 302 Rewa Chambers,
Near Marine Lines, Mumbai 400 020
4. Mahendra Radheshyam Agrawal,
aged about 36 years, occupation business,
resident of 2-J Judge's Court Road, Alipur,
Calcutta 700 027
5. M/s Home Trade Ltd. By its Director/
Chief Executive Officer/Authorised signatory,
Sanjay Hariram Agrawal, aged about
37 years, occupation business, having
its Regd. Office at Tower-4, 5 th floor,
Vasi Railway Station Complex, International
Infotech Park, New Mumbai 400 703
::: Uploaded on - 07/04/2021 ::: Downloaded on - 05/09/2021 18:12:15 :::
FA361.10(J) 2/53
5(a) Nandkishore Shankarlal Trivedi,
aged 45 years, Director of M/s Home
Trade Ltd. Mumbai, resident of Pushpam
Apartment, 6 Khandubhai Desai Road,
Vile Parle, (West), Mumbai
5(b) Subhodhchand Dayal Bhandari,
aged 37 years, Director of M/s Home
Trade Ltd., Mumbai, resident of B-703,
Govind Complex, Sector-14, Vasi,
Navi Mumbai
6) Sanjay Hariram Agrawal,
aged about 37 years, occupation business,
resident of Tower-4, 5th floor, Vasi Railway
Station Complex, International Infotech Park,
New Mumbai 400 703
7. Janata Sahakari Bank Ltd. Pune
having its branch at Fort, Mumbai
through its Branch Manager ... Respondents
Orig. Defendants.
.....................
Shri Anand Parchure, Advocate for plaintiff/appellant.
Shri S.V.Purohit with Ms Gauri S. Purohit, Advocates for defendant/respondent
nos. 1 and 2.
Shri A.A.Choube, Advocate for defendant/respondent nos. 5(a) and 5(b).
Shri A.C.Dharmadhikari, Advocate for defendant/respondent no. 7.
....................
CORAM : A. S. CHANDURKAR AND PUSHPA V. GANEDIWALA, JJ.
Date on which the arguments were heard : 16th February, 2021
Date on which the judgment is pronounced : 7th April, 2021.
Judgment : (Per A.S.Chandurkar, J.)
This appeal under Section 96 of the Civil of Procedure Code,
1908 (for short, the Code) has been preferred by the unsuccessful plaintiff
which claims to be a victim of the "Government Securities Scam" in
Maharashtra. By the judgment dated 25.01.2010 in Special Civil Suit
No.165/2002 the suit for return of Government Securities sold by the
FA361.10(J) 3/53
plaintiff or in the alternate for recovery of value of the securities to the
tune of Rs.12,75,86,403.67 has been dismissed.
2. The facts relevant for deciding the appeal as can be gathered
from the pleadings of the parties are being referred to. The parties are
being referred to as per their status before the trial Court. It is the case of
the plaintiff that it is a bank duly registered under the provisions of the
Maharashtra Co-operative Societies Act, 1960 (for short, the Act of 1960).
It carries on activities as a Non-scheduled Urban Co-operative Bank. As
per Circulars issued by the Reserve Bank of India from time to time the
plaintiff is required to invest 15% of its net demand and time liabilities in
government and other approved securities. In accordance with these
Circulars the plaintiff is engaged in making investments in government
and other approved securities. This activity of purchasing securities was
being undertaken by the plaintiff through the defendant no.1 which is a
company registered with the Reserve Bank of India under the provisions
of the Reserve Bank of India Act, 1934. The plaintiff's dealings with the
defendant no.1 are from the year 1998 and the defendant no.2 is its Chief
Executive Officer and Director. The plaintiff is concerned with two
transactions of sale and purchase of Government Securities. As per the
first transaction dated 15.01.2002 the plaintiff was to sell Government
Security "GOI 10.70% Government Stock 2020"(hereinafter referred to as
FA361.10(J) 4/53
Security No.1) to the defendant no.1. The total face value of the said
security was Rs.4,00,00,000/- and the sale consideration was
Rs.4,60,00,000/- with accrued interest of Rs.10,34,333.33 on the date of
settlement which was 19.01.2002. The plaintiff was required to physically
deliver the said security to the defendant no.1 within a period of fifteen
days from the date of settlement. It was agreed that the defendant no.1
instead of paying sale consideration of Rs.4,70,34,333.33 would purchase
Government Security "GOI 8.07% Government Stock 2017"( hereinafter
referred to as Security No.2). The total valuation thereof was
Rs.4,04,35,866.67. Security No.2 was to be physically delivered by the
defendant no.1 to the plaintiff within a period of forty five days from the
date of settlement. The defendant no.1 was to pay difference amount of
Rs.65,98,466.66 to the plaintiff. According to the plaintiff pursuant to this
agreement dated 15.01.2002 as per the trade practice Security No.1 was
physically delivered along with blank signed transfer forms to the
representative of the defendant no.1 on 29.01.2002. Pursuant thereto the
defendant no.1 paid the amount of difference of Rs.65,98,466.66 to the
plaintiff vide cheque dated 19.01.2002. According to the plaintiff it
completed its part of the aforesaid transaction. However the defendant
no.1 failed to deliver Security No.2 that was agreed to be delivered to the
plaintiff.
FA361.10(J) 5/53
3. The second transaction according to the plaintiff was dated
28.02.2002. In pursuance to the deal confirmation letter dated
28.02.2002 issued by the defendant no. 1, the plaintiff was to sell
Government Securities having face value of Rs.5,50,00,000/-(hereinafter
referred to as Security No.3) to the defendant no.1 for a consideration of
Rs.6,40,32,347.48. These Government Securities were to be physically
delivered to the defendant no.1 within 15 days from 28.02.2002. The
defendant no.1 instead of paying the sale consideration agreed to
purchase Government Securities having face value of Rs.5,50,00,00/-
(hereinafter referred to as Security No.4) which were to be thereafter
physically delivered by the defendant no.1 to the plaintiff within forty five
days from 28.02.2002. The defendant no.1 was to pay the difference
amount of Rs.60,76,097.48 to the plaintiff. The aforesaid transaction was
duly confirmed on 07.03.2002. The plaintiff as per the trade practice
delivered Security No.3 to the representative of the defendant no.1 along
with blank signed transfer forms. As five transfer forms in respect of
Maharashtra Krishna Valley Development Corporation Bonds (MKVDC
Bonds) had not been properly filled in, the defendant no.1 called upon the
plaintiff to send five transfer forms along with the letter dated 16.03.2002.
According to the plaintiff the difference amount of Rs.60,76,097.48 was
paid by the defendant no.1 through various demand drafts but the
defendant no.1 failed to deliver Security No.4 to the plaintiff as agreed.
FA361.10(J) 6/53
4. According to the plaintiff as the defendant no.1 failed to
physically deliver Security nos.2 and 4, its officers made various
telephonic calls to the defendant no.1 and it was assured that the
securities would be delivered shortly. As regards transaction dated
28.02.2002 the defendant no.1 informed the plaintiff that a deal in that
regard was made with the defendant no.3 and a fax message to that effect
was sent to the plaintiff. As the defendant no.1 did not physically deliver
the securities, the plaintiff issued two notices on 30.04.2002 calling upon
the defendant no.1 to deliver Security No. 2 and the defendant nos. 1 and
3 to deliver Security No. 4 as agreed or in the alternative to pay the
consideration thereon with interest. The defendant no.1 did not deliver
Security Nos. 2 and 4 to the plaintiff. As the Government Securities were
not available with the plaintiff in physical form, the Commissioner, Co-
operation, State of Maharashtra, dissolved the governing body of the
Board of Directors of the plaintiff on 10.05.2002 and appointed an
Administrator. In the meanwhile, a report was lodged with Police Station
City Kotwali, Amravati alleging misappropriation by the defendant no.1.
Thereafter on 29.05.2002 and 03.06.2002 the defendant no.1 sought to
reply to the plaintiff's notice dated 30.04.2002. It was stated that the
defendant no.1 did not have a dealer's license of the Wholesale Debt
Market to enable it to purchase and sell Government Securities. Hence the
defendant no.1 had forwarded Security No.1 to the defendant no.5 for its
FA361.10(J) 7/53
sale and thereafter for purchase of Security No.2 as agreed. The
defendant no.5 however failed to deliver Security No.2. As regards the
second transaction dated 28.02.2002 the defendant no.1 stated that no
such transaction had been entered by it but it was the defendant no.3 who
had entered into such transaction with the plaintiff.
5. It is then pleaded by the plaintiff that in the criminal complaint
as filed offences under various provisions of Indian Penal Code came to be
registered against the defendant nos. 1 to 6 and the defendant nos. 2, 4
and 6 came to be arrested. By amending the plaint it was alleged that the
defendant nos. 1 to 6 were guilty of hatching criminal conspiracy and
were abetted by the defendant no.7 which was against public interest and
public policy. It is on the aforesaid premise that the plaintiff proceeded to
file the present suit claiming the amounts due from the defendants jointly
and severally under the transactions dated 15.01.2002 and 28.02.2002.
The plaintiff sought a decree against the defendants by holding them
liable to return back Government Securities or the value thereof. The suit
was accordingly filed on 12.09.2002.
6. The defendant nos.1 and 2 filed their written statement at
Exhibit 107. It was pleaded that as per the statutory provisions only a
member of Wholesale Debt Market could deal in Government Securities
and as the defendant no.1 was not a Wholesale Debt Market broker, it was
FA361.10(J) 8/53
not possible for it to purchase securities on its own. The payment of
difference amount of Rs.65,98,466.66 with regard to transaction no.1 was
admitted by the defendant no.1. It was further pleaded that the
defendant no.1 through the defendant no.5 had sought to obtain
Government Securities forming part of Security No.2. However despite
paying the entire consideration to the defendant no.5 it failed to keep its
promise as per undertaking dated 25.01.2002 on account of which the
defendant no.1 could not deliver Security No.2 to the plaintiff. The
remedy of the plaintiff was against the defendant no.5 not against the
defendant nos. 1 and 2. It was stated that the transaction dated
28.02.2002 was entered into by the plaintiff with the defendant no.3 and
the defendant nos. 1 and 2 had no connection therewith. It was denied
that the defendants were part of any conspiracy as alleged. It was thus
prayed that the suit against the said defendants was liable to be dismissed.
The defendant nos. 3 and 4 filed their written statement at
Exhibit 18. All allegations made against them were denied. According to
the said defendants the transactions alleged were between the defendant
nos.1 and 2 and the defendant nos. 3 and 4 were not concerned
therewith. It was stated that there was no cause of action against the said
defendants nor was any transaction entered into with them. Thus, the
suit was liable to be dismissed.
FA361.10(J) 9/53
The defendant no.5(a) filed his written statement at Exhibit
100. The allegations as made against the said defendant were denied. It
was further stated that the said defendant had resigned from the
defendant no.5-Company on 25.04.2002 and hence was not liable in any
manner whatsoever. It was also pleaded that the defendant no.5(a) was
joined as a defendant after expiry of period of limitation and hence the
suit against him was not maintainable.
The defendant no. 5(b) filed his written statement at Exhibit
104 and took the stand that he was not a Director of the defendant no.5-
Company but was only its employee. He denied any liability whatsoever.
The defendant no.7 filed its written statement at Exhibit 24. It
was pleaded that the defendant no.2 had deposited MKVDC Bonds worth
Rs.1,50,00,000/- with the defendant no.7 as security for the credit facility
availed by the defendant no.2. The defendant no.7 had sanctioned cash
credit limit to the tune of Rs.20,00,00,000/- to the defendant no.2 on
05.03.2001 and pursuant thereto the said Bonds had been furnished as
security by the defendant no.2. The said defendant claimed banker's lien
over the same as the Bonds had been pledged with it. It was stated that
the said defendant would prove its status as pledgee under the provisions
of the Indian Contract Act, 1872. It was thus pleaded that the defendant
no.7 had absolute right to deal with the said Bonds and that the plaintiff
was not entitled to the reliefs sought against the said defendant.
FA361.10(J) 10/53
7. Before the trial Court the plaintiff examined two witnesses. The
defendants did not examine any witness. On the basis of material on
record the trial Court proceeded to hold that the plaintiff had failed to
prove that it had entered into the transactions dated 15.01.2002 and
28.02.2002 with the defendant nos.1 and 2. The plaintiff had also failed
to prove that the aforesaid transactions were vitiated by fraud, cheating,
forgery or criminal breach of trust. It was further held that the plaintiff
had failed to prove that the defendant no.7 had abetted the defendant
nos.1 to 6 in misappropriating Security Nos. 1 and 3. The payment of the
entire consideration by the defendant nos. 1 and 2 to the defendant no.5
for purchasing Security No.2 was held to be duly proved. The lien of the
defendant no.7 over the MKVDC Bonds pursuant to the cash credit limit
sanctioned in favour of the defendant no.2 was also held to be proved.
The suit was held to be bad for non-joinder of parties. In the light of these
findings, the learned Judge of the trial Court proceeded to dismiss the suit
with costs. Being aggrieved the plaintiff has preferred the present appeal.
8. Shri Anand Parchure, learned counsel for the plaintiff after
referring to the pleadings of the parties and their evidence submitted that
the learned Judge of the trial Court committed an error in holding that the
plaintiff had failed to prove the transactions dated 15.01.2002 and
28.02.2002. The evidence on record indicated that Security No.1 in its
FA361.10(J) 11/53
physical form was handed over to the representative of the defendant no.1
and pursuant thereto the difference amount of Rs.65,98,466.66 was also
paid to the plaintiff. Having delivered Security No.1 to the defendant no.1
and thereafter the defendant no.1 having paid the differential amount it
was clear that the transaction dated 15.01.2002 was completed and thus
duly proved by the plaintiff. Similarly, Security No.3 was also handed
over to the representative of the defendant no.1 in its physical form after
which the defendant no.1 paid the plaintiff the difference amount of
Rs.60,76,097.48. There was substantial documentary evidence on record
to indicate that the plaintiff had proved the transactions dated 15.01.2002
and 28.02.2002. The trial Court however without appreciating the
evidence on record in its proper perspective erred in holding that these
transactions were not duly proved by the plaintiff. The defendant no.1
and 2 had admitted entering into transaction dated 15.01.2002 but
ignoring the same contrary finding was recorded. The defendants had in
fact failed to lead any evidence whatsoever and they merely sought to
shift the blame on other defendants. As it was clear that Security Nos. 1
and 3 had been duly handed over to the defendant no.1 both these
transactions were duly proved. He therefore submitted that the plaintiff
was entitled to receive back Security Nos. 1 and 3 or in the alternative the
value thereof.
FA361.10(J) 12/53
The learned counsel then referred to various grounds raised in
the memorandum of appeal and submitted that reliance was sought to be
placed by the learned Judge of the trial Court on material that was not
placed on record by either of the parties. The plaintiff did not have any
opportunity to counter such material that was taken into consideration by
the trial Court on its own. He specifically referred to the adjudication of
Issue No.11 in the impugned judgment and submitted that such course
also vitiated the impugned judgment. Further the trial Court was not
justified in dismissing the suit with costs. According to him, when the
judgment was pronounced it was stated that it was merely dismissed and
the dismissal with costs was subsequently added in the judgment. Placing
reliance on the decision in K.V.Rami Reddi Vs. Prema (2009 ) 17 SCC 308
it was submitted that when the learned Judge heard the arguments he
was discharging judicial duties as 3rd Joint Civil Judge, Senior Division but
when the judgment was delivered he was discharging judicial duties as 4 th
Joint Civil Judge, Senior Division. Further, no notice under Section 164 of
the Act of 1960 was required to be issued to the defendant no.7 as the
plaintiff was exercising its legal rights and seeking restoration of the
MKVDC Bonds.
After referring to the notes of arguments that were placed on
record before the trial Court it was submitted that on a proper
consideration of the entire evidence on record it was clear that the suit as
FA361.10(J) 13/53
filed was liable to be decreed and the judgment of the trial Court was
liable to be set aside.
9. Shri S.V.Purohit, learned counsel appearing for the defendant
nos. 1 and 2 supported the impugned judgment and submitted that as the
defendant no.1 was not a member of Wholesale Debt Market, it was not
possible for it to deal in Government Securities. The plaintiff was aware
about this fact and the defendant nos. 1 and 2 as brokers were justified in
seeking to complete the transactions through the defendant no.5. The
remedy of the plaintiff was against the defendant no.5. The learned
counsel referred to documentary material on record and submitted that
the aspect of exchange of securities was never pleaded by the plaintiff and
hence the trial Court was justified in recording a finding that the plaintiff
had failed to prove the transactions dated 15.01.2002 and 28.02.2002.
He also referred to written notes filed at Exhibit 443 before the trial Court
to substantiate his contentions. He placed reliance on the decision in
Nandkishor Lalbhai Mehta Vs. New Era Fabrics Pvt. Ltd. (2015) 9 SCC 755
and submitted that in absence of material pleadings with regard to
exchange of securities, no relief could be granted to the plaintiff.
Shri A.A.Choube, learned counsel for the defendant nos. 5(a)
and 5(b) referred to the written statement filed by the said defendants
and submitted that though the defendant no.5 had nine Directors only two
FA361.10(J) 14/53
of them had been joined as defendants. None of the documents that were
placed before the trial Court were signed by the defendant nos. 5 (a) and
5(b). He referred to the cross-examination of the plaintiff's witnesses to
demonstrate that there was no material whatsoever on record against the
said defendants and the trial Court was justified in dismissing the suit.
Reference was made to the provisions of Section 85-B of the Indian
Evidence Act, 1872 and it was submitted that no interference with the
judgment of the trial Court was called for.
Shri A.C.Dharmadhikari, learned counsel appearing for the
defendant no.7 submitted that MKVDC Bonds worth Rs.1,50,00,000/- had
been furnished by the defendant no.2 by way of security for the cash
credit facility advanced to that defendant. There being a concluded
contract between the defendant no.2 and the defendant no.7 the said
defendant had a banker's lien over the said Bonds. He referred to the
specific pleadings in the written statement to substantiate his stand that
after completing all the formalities the Bonds were furnished as security
for the cash credit facility. He also referred to the cross-examination of
both the witnesses examined by the plaintiff to urge that the defendant
no.7 had not abetted the other defendants in any manner whatsoever.
Moreover the aforesaid Bonds had been seized from the defendant no.7
during the course of investigation by the police authorities. He also
referred to the evidence with regard to the transfer forms being signed by
FA361.10(J) 15/53
the employees of the plaintiff to justify the legal right of the defendant
no.7. The plaintiff itself having authorised the sale of the securities it was
now estopped from making a grievance in that regard. He further
submitted that no notice under Section 164 of the Act of 1960 was given
to the defendant no.7 before filing the suit. Similarly the plaintiff had
failed to point out any prejudice being caused by virtue of the fact that the
learned Judge of the trial Court had referred to various Notifications and
Circulars while deciding the suit. The learned Judge also had necessary
jurisdiction to try and decide the suit. He placed reliance on the decision
in Central Bank of India Vs. Siri Guppa Sugars and Chemicals Ltd and ors.
AIR 2007 SC 2804 and submitted that there was no reason to interfere
with the judgment of the trial Court and the appeal was liable to be
dismissed.
10. We have heard learned counsel for the parties at length and we
have also perused the records of the case. In the light of the rival
pleadings of the parties the following points arise for adjudication :-
1) Whether the plaintiff proves that it had entered into transaction
dated 15.01.2002 with the defendant no.1 for sale of Security No.1 and
in lieu thereof the defendant no.1 was to sell Security No.2 to it ?
2) Whether the plaintiff proves that it had entered into transaction
dated 28.02.2002 with the defendant no.1/defendant no.3 for sale of
FA361.10(J) 16/53
Security No.3 and in lieu thereof the defendant no.1/ defendant no.3 was
to sell Security No.4 to it ?
3) Whether the transactions dated 15.01.2002 and 28.02.2002
were in the nature of sale and purchase of securities as urged by the
plaintiff or they were transactions of exchange as held by the trial Court ?
4) Whether the plaintiff proves that it is entitled to return of
Security Nos. 1 and 3 or the alternate relief of value of those Securities
from the defendants ?
5) Whether the defendant no.7 has proved that it has bankers lien
over MKVDC Bonds being security furnished by the defendant no.2 ?
6) Whether the suit is bad for non-joinder of necessary parties ?
7) Whether the suit is bad against the defendant no.7 for want of
notice under Section 164 of the Act of 1960 ?
(8-i) Whether the trial Court was justified in relying upon various
Circulars and Notifications without furnishing an opportunity to the
parties to address it on the same ?
(8-ii) Whether the dismissal of the suit with costs was justified ?
(8-iii) Whether the Court of 4th Joint Civil Judge, Senior Division was
competent to decide the suit ?
11. Before considering the rival pleadings of the parties and re-
appreciating the evidence on record, it would be necessary to refer
FA361.10(J) 17/53
to the following aspects :
(a) The entire case of the plaintiff is based on documentary
evidence. Shortly prior to filing of the suit, Crime No.75/2002 came to be
registered with regard to the transactions entered into by the plaintiff and
the Investigating Officer seized voluminous documents during the course
of investigation. The plaintiff has therefore examined the Investigating
Officer for bringing on record that documentary evidence.
(b) The plaintiff examined two witnesses in support of its case.
Though defendant nos. 1 to 4, 5(a), 5(b) and 7 filed their written
statements none of the defendants examined either themselves or any
witnesses.
(c) By amending the plaint and referring to the registration of
offences under various provisions of the Indian Penal Code against the
defendant nos. 1 to 6 it was pleaded that the transactions in question
were tainted with fraud, cheating, forgery, criminal breach of trust,
criminal misappropriation and criminal conspiracy being hatched by
defendant nos. 1 to 6 and abetment by defendant no.7. Despite these
pleadings, in the present civil proceedings the standard of proof required
would be on the touchstone of preponderance of probabilities and not
proof beyond reasonable doubt.
FA361.10(J) 18/53
12. The plaintiff to substantiate its entitlement to the reliefs
claimed in the plaint examined PW 1-D.M.Mawalkar at Exhibit 141. The
said witness was working as Manager of the plaintiff since 1996 and from
March 2002 he was working as its Managing Director. The other witness
examined was Mohd. Qureshi at Exhibit 281, the Investigating Officer in
Crime No.75/2002 that was registered pursuant to the complaint lodged
by the Divisional Joint Registrar, Co-operative Societies in relation to the
transactions that are the subject matter of the suit. The defendants did not
examine any witness and sought to cross-examine the plaintiff's witnesses.
The parties have relied upon documentary material in support of their
respective stands.
As to Point No.1
13. According to the plaintiff as per various Circulars issued by the
Reserve Bank of India from time to time the plaintiff was required to
invest 15% of its net demand and time liabilities in Government and other
approved Securities. Resolution dated 31.07.1998 was passed by the
Board of Directors of the Bank-Exhibit 235 in that regard. Pursuant thereto
the Bank entered into two transactions for sale and purchase of
Government Securities. As per the first transaction dated 15.01.2002
Security No.1 in the form of "Government of India 10.70% Government
Stock, 2020" valued at Rs.4,00,00,000/- Exhibits 145 to 152 was to be
FA361.10(J) 19/53
sold and in lieu thereof the defendant nos. 1 and 2 were to procure
Security No.2 and hand it over to the plaintiff. The date of settlement was
taken as 19.01.2002 and the market value of Security No.1 on that date
was settled at Rs.4,00,04,000/- along with accrued interest of
Rs.35,866/-. In this regard confirmation was received from the defendant
no.1 on 15.01.2002 at Exhibits 190 and 191. On 28.01.2002 the plaintiff
handed over original eight certificates of the "Government of India
10.70% Government Stock, 2020" each valued at Rs.50,00,000/- to the
representative of the defendant no.1-Shri Pushpak Khot - Exhibit 208. The
delivery of Security No.1 is accepted by Shri Pushpak Khot in his
statement at Exhibit 313. The defendant no.1 issued a cheque dated
19.01.2002 for an amount of Rs.65,98,466.66 in favour of the plaintiff.
In the written statement filed by the defendant nos. 1 and 2 at Exhibit
107, it was admitted that the defendant no.1 was concerned only with the
transaction pertaining to Security No.1. It was further admitted that the
defendant no.1 had paid the difference amount of Rs.65,48,466.66 to the
plaintiff. This fact is also clear from the statement of Smt. Jugna Lodaya
dated 25.05.2002 at Exhibit 311 admitting such payment by the defendant
no.1. Letter dated 14.11.2002 issued on behalf of Standard Chartered
Bank-Exhibit 322 also records the fact that the said cheque was drawn
from the account of defendant no.1. The letter dated 20.06.2002-Exhibit
297 issued by the Reserve Bank of India to PW 2 states that the Reserve
FA361.10(J) 20/53
Bank of India had not authorised the defendant no.1 or the defendant
no.3 as Primary or Satellite Dealer in Government Securities.
14. The plaintiff on 30.04.2002 issued a notice at Exhibit 192 to
the defendant no.1 demanding delivery of Security No.2 or its value along
with interest. In this context the defendant nos. 1 and 2 have relied upon
the reply notice-Exhibit 216 sent by their legal advisors reiterating this
stand. In the cross-examination of PW 2-Exhibit 281 it was suggested on
behalf of the defendant nos. 1 and 2 that under the first transaction the
plaintiff was to sell Security No.1 to the defendant no.1 and in exchange
was to buy Security No.2. This was accepted to be correct by PW 2. The
defendant nos. 1 and 2 had taken the stand that defendant no.1 was not a
member of the Wholesale Debt Market and had hence sourced Security
No.2 from the defendant no.5. PW 2 admitted that the defendant no.1
had paid the sale consideration of Security No.2 to the defendant no.5 and
had also directed the defendant no.5 to supply Security No.2 to the
plaintiff. He further admitted that during the course of investigation it
was revealed that the defendant no.5 had not supplied Security No.2 to
the plaintiff. The defendant no.5 had defaulted in honouring its
commitment of delivering Security No.2. It is also seen that at Exhibit
389, the sole Arbitrator in arbitration proceedings initiated by defendant
no.1 had passed award on 20.01.2003 directing the defendant no.5 to
FA361.10(J) 21/53
deliver 12 securities as specified or pay an amount of Rs.16,89,04,938.96
to the defendant no.1. While defendant no.5 did not file its written
statement the defendant no.5(a) denied the plaint allegations and stated
that he had resigned as Director of the defendant no.5 company on
25.04.2002. Defendant no.5(b) also denied the liability to satisfy the suit
claim.
15. In the light of the aforesaid documents and especially those at
Exhibits 190, 191 and 208 coupled with the fact that the defendant no.1
had admitted that it had paid the plaintiff the differential amount of
Rs.65,98,466.66 vide Cheque No.33686 dated 19.01.2002, it becomes
clear that the plaintiff has proved that it had entered into transaction
dated 15.01.2002 with the defendant no.1 for sale of Security No.1 to it
and in lieu thereof it was to purchase Security No.2 from the defendant
no.1. The defendant no.1 too admitted this transaction. Interestingly the
trial Court while answering issue no.2 has recorded a finding that the
defendant nos. 1 and 2 were only concerned with Security Nos. 1 and 2 as
described in paragraph 4 A of the plaint. A finding is also recorded in
paragraph 60 of the impugned judgment that delivery of Security No.1
was taken by the defendant no.1 and amount of Rs.65,98,466.67 was paid
by the defendant no.1 from its account. Despite these findings, it was
held that the plaintiff had failed to prove the first leg of transaction no.1
FA361.10(J) 22/53
dated 15.01.2002. This conclusion is clearly contrary to the pleadings of
the plaintiff, the defendant nos. 1 and 2 as well as the evidence on record.
The plaintiff's transaction with regard to Security No.1 having
been entered into with defendant no.1 it alone was responsible to deliver
Security No.2 to the plaintiff. The defendant no.1 may have further
sought to purchase Security No.2 from the defendant no.5 but the plaintiff
was not concerned with the same. That was a matter between the
defendant no.1 and defendant No.5. The defendant no.1 having taken
delivery of Security No.1 from the plaintiff and also having paid the
difference amount of Rs.65,98,466.66 to the plaintiff it was legally bound
to deliver Security No.2 to the plaintiff. The trial Court in paragraph 140
of its judgment has wrongly held that as the defendant no.1 had paid the
difference amount to the plaintiff and the consideration of Security No.2
to the defendant no.5, it could not be held liable. It was for the defendant
no.1 to pursue its own remedies against the defendant no.5 for non-
delivery of Security No.2 to it as the plaintiff did not have any privity of
contract in that regard with the defendant no.5. Thus it is held on the
basis of the evidence on record that the plaintiff has proved that it had
entered into transaction dated 15.01.2002 with the defendant no.1 for
sale of Security No.1 to it and in lieu thereof the defendant no.1 was to
sell Security No.2 to it. Point no.1 stands answered accordingly.
FA361.10(J) 23/53
As to Point No.2 :
16. The second transaction according to the plaintiff is dated
28.02.2002. As per this transaction Government Securities valued at
Rs.5,50,00,000/- were sold by the plaintiff to the defendant no.1 for a
consideration of Rs.6,40,32,347.48. Instead of paying the aforesaid sale
consideration the defendant no.1 was to deliver Government Securities
having face value of Rs.5,50,00,000/- for a consideration of
Rs.5,79,56,250/- and also pay the difference amount of Rs.60,76,097.48
to the plaintiff. The "Government of India 10.50% Bonds, 2014" having
face value of Rs.4,00,00,000/- are at Exhibits 171 to 177 and the MKVDC-
2005 Bonds having face value of Rs.1,50,00,000/- are at Exhibits 183 to
187. It is seen from the document at Exhibit 195 dated 28.02.2001, which
date ought to be 28.02.2002 according to PW 1, that the plaintiff had
received a fax message from the defendant no.1 to confirm the aforesaid
deal. The plaintiff's Managing Director endorsed the said fax message to
Mrs. Deshpande of the Bank for confirmation. On 28.02.2002 the plaintiff
pursuant to telephonic talks and the quotation sent by the defendant no.1
had issued a letter to the defendant no.1-Exhibit 210 to purchase the
securities referred to above valued at Rs.5,50,00,000/-. At Exhibits 242 to
245 and 248 are deal confirmation letters dated 04.03.2002 sent by the
authorised signatory of the defendant no.3 stating therein that the
defendant no.3 had bought Security No.3 having face value of
FA361.10(J) 24/53
Rs.5,50,00,000/- and had sold Security No.4 having face value of
Rs.5,50,00,000/-. PW 1 in his cross-examination admitted that these
documents were received through electronic mode and were part of the
charge-sheet at Exhibit 202. It was further stated therein that the net
amount payable towards difference by defendant no.3 to the plaintiff was
Rs.60,76,097.48. On 07.03.2002 the Government Securities in original
along with certificates of MKVDC Bonds as well as transfer forms were
handed over to the representative of the defendant no.1-Shri Pushpak
Khot as is clear from Exhibit 209. PW 1 stated that the said securities
were handed over to Shri Pushpak Khot in his presence and he had
acknowledged its receipt. The delivery and acceptance of Security No.3 is
also admitted by Shri Pushpak Khot in his statement dated 03.07.2002
which is at page 127 of the charge-sheet - Exhibit 202. The share transfer
forms indicating the name of the plaintiff as transferor are on record at
Exhibits 197 to 201 and its phoco-copies are at Exhibits 257 to 261. There
is also a letter dated 16.03.2002 issued by the plaintiff to the defendant
no.1 stating that five transfer forms for MKVDC Bonds were being sent as
per telephonic talks and that letter is at Exhibit 194. The difference
amount of Rs.60,76,097.48 was paid to the plaintiff through thirteen
demand drafts dated 06.03.2002 and the same were encashed by the
plaintiff which is clear from the letter dated 30.05.2002 - Exhibit 196
issued by the Indian Bank.
FA361.10(J) 25/53
17. PW 2 Shri Mohammed Aslam Qureshi in his affidavit at Exhibit
281 has stated that the thirteen demand drafts had been drawn by
Shri Mahendra Radheshyam Agrawal - defendant no.4, Director of the
defendant no.3 Company from his account with the HDFC Bank. The
letter issued by the HDFC Bank in that regard is at Exhibit 320. At Exhibit
256 is the clearing voucher of the plaintiff indicating receipt of that
amount. On 30.04.2002 the plaintiff issued a notice to the defendant
nos.3 and 1 - Exhibit-193 stating that Government Securities and MKVDC
Bonds having face value of Rs.5,50,00,000/- had been sold to the said
defendants and the original certificates were handed over on 07.03.2002.
However, Security No.4 had not been handed over to the plaintiff. The
plaintiff therefore sought return of those Government Securities handed
over to the said defendants or Security No.4 or its equivalent value. The
transaction dated 28.02.2002 however was not admitted by the defendant
nos. 1 and 2 and according to them the plaintiff had entered into that
transaction with the defendant no.3. The reply sent in May 2002 by the
legal advisors of the defendant nos. 1 and 2 at Exhibit 215 indicates that
said defendants had merely sent their quotation dated 02.02.2002 to the
plaintiff. According to them the plaintiff had entered into this transaction
with the defendant no.3.
FA361.10(J) 26/53
18. PW 2 the officer who investigated Crime No.75/2002 admitted
in his cross-examination that the transaction with regard to Security No.3
was entered into between the plaintiff and the defendant no.3 through the
defendant no.1 as broker. He was referred to the deal confirmation fax
dated 04.03.2002 at Exhibits 242 to 245. He admitted that the defendant
no.3 had paid the difference amount of Rs.60,76,097.48 to the plaintiff
while receiving Security No.3. He further stated that the defendant no.3
passed Security No.3 to defendant no.5 after which defendant no.5 sold
the said securities to the various persons.
PW 2 was then referred the statement of Shri Ketan Maskariya
- Exhibit 314 recorded by him. In the said statement it was stated by Shri
Ketan Maskariya that Security No.3 had been purchased by defendant
no.3 from the plaintiff and that the same were handed over to him by Shri
Rajesh Lasunkar who was a peon employed with the defendant no.5. It
was further stated by him that out of Security No.3 that was valued at
Rs.5,50,00,000/-, securities worth Rs.2,00,00,000/- and MKVDC Bonds
worth Rs.1,50,00,000/- were sold to the defendant no.1 while the
remaining securities worth Rs.2,00,00,000/- were sold to M/s Shreyam
Securities Finance Ltd and Vallient Capitals Services Pvt. Ltd. In the
statement at Exhibit 314 it was admitted that Security No.3 was sold by
defendant No.5 to the defendant no.1.
FA361.10(J) 27/53
PW 2 was also referred the statement of Shri Jaikumar
Mehta - Exhibit 316 who was an employee of defendant no.5. PW2
admitted that in his statement, Shri Jaikumar Mehta had stated that
Security No.3 was purchased by the defendant no.3 from the plaintiff and
then delivered by the defendant no.3 to the defendant no.5. It was further
stated that Shri Rajesh Lasunkar who was a peon with the defendant no.5
had handed over Security No.3 to him.
PW 2 thereafter concluded by saying that Security No.3 was
purchased by defendant no.3 and then given to defendant no.5. He also
stated that thereafter Government Securities worth Rs.2,00,00,000/- and
MKVDC Bonds worth Rs.1,50,00,000/- were sold by defendant no.5 to the
defendant no.1.
The trial Court after referring to Exhibits 209, 242 to 245, 248,
193, 238, 239, 250, 295, 231, 320 and 214 has recorded the finding in
paragraphs 90 to 100 and 127 that the transaction dated 28.02.2002 was
entered into by the plaintiff with the defendant no.3. The deal was
confirmed on 04.03.2002. Security no.3 was handed over to Shri Pushpak
Khot, employee of defendant no.1 along with Rajesh Lasunkar, employee
of defendant no.5 which was a sister concern of defendant no.3. Despite
all these findings it has been held that the plaintiff had failed to prove the
transaction dated 28.02.2002. The defendant no.3 has not challenged any
of the adverse findings recorded against it by the trial Court.
FA361.10(J) 28/53
19. In the light of the fact that Security No.3 having face value of
Rs.5,50,00,000/- was handed over to Shri Pushpak Khot, an employee of
defendant no.1 on 07.03.2002, pursuant to the fax message of the
defendant no.1- Exhibit 195, five blank transfer forms sent to the
defendant no.1 as per letter dated 16.03.2002 - Exhibit 194, difference
amount of Rs.60,76,097.48 was paid to the plaintiff vide thirteen demand
drafts by the defendant no.3 coupled with the letter dated 04.03.2002 -
Exhibit 248 issued by defendant no.3 it becomes clear that Security No.3
was handed over to the defendant no.1. It thereafter passed it on to the
defendant no.3 after which the plaintiff received the difference amount of
Rs.60,76,097.48, from the defendant no.3. The manner in which Security
No.3 travelled from defendant no.3 to defendant no.5 and from defendant
no.5 to defendant no.1 as sought to be elicited in the cross-examination of
PW 2 is not very material for answering Point No.2. The plaintiff has thus
proved transaction dated 28.02.2002 and the handing over of Security
No.3 to the defendant no.1 and its purchase by defendant no.3. Point
no.2 stands answered accordingly.
As to Point No.3 :
20. The learned Judge of the trial Court has laboured much on the
nature of transactions entered into by the plaintiff with the defendant
no.1/defendant no.3. It has been held that though the transactions
FA361.10(J) 29/53
between them were in the nature of sale and purchase of securities, the
evidence led by the plaintiff was with regard to exchange of Security No.1
with Security No.2 and of Security No.3 with Security No.4. There were
however no pleadings in respect of exchange of securities. It is on that
premise that the trial Court proceeded to hold that the plaintiff had failed
to prove the transactions dated 15.01.2002 and 28.02.2002.
In this regard it would be necessary to refer to the averments
made by the plaintiff in the plaint while describing the nature of said two
transactions. In paragraph 4 of the plaint, it has been pleaded that both
the transactions were in respect of sale and purchase of Government
Securities entered into between the plaintiff and the defendant no.1 on
15.01.2002 and 28.02.2002. As regards the first transaction it has been
pleaded that the plaintiff entrusted to the defendant no.1 Government
Security having face value of Rs.4,00,00,000/- for a consideration of
Rs.4,60,00,000/- with accrued interest of Rs.10,34,333.33 on the date of
settlement which was 19.01.2002. Security No.1 was to be physically
delivered by the plaintiff to the defendant no.1 within fifteen days from
the date of settlement and it was agreed that the defendant no.1 instead
of paying the said sale consideration of Rs.4,70,34,333.33 in cash would
purchase Government Securities having face value of Rs.4,00,00,000/-
and market value as on the date of the settlement at Rs.4,04,00,000/-
with accrued interest of Rs.35,866.67. The said securities were to be
FA361.10(J) 30/53
physically delivered by the defendant no.1 to the plaintiff within forty-five
days from the date of settlement. The defendant no.1 was to pay the
difference amount of Rs.4,70,34,333.33 (-) Rs.4,04,35,866.67 which was
Rs.65,98,466.66. According to the plaintiff though the defendant no.1
paid the difference amount by issuing a cheque on 19.01.2002, it did not
deliver Security No.2 to the plaintiff. In other words, though the plaintiff
sold and delivered Security No.1 to the defendant no.1, the defendant
no.1 in reciprocation did not sell and deliver Security No.2 to the plaintiff.
Similarly with regard to the transaction dated 28.02.2002 it
was pleaded that Government Securities having face value of
Rs.5,50,00,000/- were entrusted by the plaintiff to the defendant no.1 for
a consideration of Rs.6,40,32,347.48. The said Government Securities
were to be physically delivered by the plaintiff to the defendant no.1
within fifteen days from the date of settlement which was 28.02.2002. It
was pleaded that it was further agreed that the defendant no.1 instead of
paying the sale consideration in cash would purchase Government
Securities having face value of Rs.5,50,00,000/- for a total consideration
of Rs.5,79,56,250/- and the same would be delivered by the defendant
no.1 to the plaintiff within forty-five days from 28.02.2002. The
defendant no.1 was to pay the difference amount of Rs.6,40,32,347.48 (-)
5,79,56,250/- which was Rs. 60,76,097.48. According to the plaintiff
though it delivered Security No.3 to the defendant no.1, the defendant
FA361.10(J) 31/53
no.1 paid the aforesaid difference amount to the plaintiff through various
demand drafts but it did not deliver Government Security No.4 to the
plaintiff as agreed.
21. In the light of these pleadings reference can be made to the
provisions of Section 2(7) of the Sale of Goods Act, 1930. Section 2(7)
defines the expression "goods" to mean every kind of movable property
other than actionable claims and money and includes stock and shares.
Section 2(2) defines "delivery" to mean voluntary transfer of possession
from one person to another. The transactions being related to
Government Securities, it was not necessary to resort to the provisions of
the Transfer of Property Act, 1882 as done by the trial Court.
The pleadings in paragraph 4 of the plaint clearly indicate that
the transactions as pleaded by the plaintiff were of sale and purchase of
Government Securities. Pleadings in that regard are clear and admit of no
doubt. It may be that the witnesses examined have used the expression
"exchange" to describe the said transactions but such description would
not have the effect of rendering such transactions to be in the nature of
exchange instead of one of sale and purchase of Government Securities.
The manner in which Government Security Nos.1 and 3 were agreed to be
sold by the plaintiff to the defendant no.1 and the manner in which it was
to purchase Government Security Nos.2 and 4 from the defendant no.1
FA361.10(J) 32/53
has been pleaded. Receipt of part of the sale consideration has also been
pleaded. According to the plaintiff the failure on the part of the defendant
no.1 in delivering Government Security Nos. 2 and 4 respectively as part
of the sale consideration amounted to breach on the part of the defendant
no.1. In the light of these clear pleadings it is found that both the
transactions dated 15.01.2002 and 28.02.2002 were transactions with
regard to sale and purchase of Government Securities between the
plaintiff and the defendant no.1. The trial Court was not justified in
proceeding to consider these transactions to be one of exchange and
thereafter recording a finding that though there was evidence on record to
indicate exchange of Security No.1 with Security No.2 and Security No.3
with Security No.4, there were no pleadings with regard to exchange. In
fact with regard to Security Nos. 1 and 2 the trial Court in paragraphs 48,
57, 60, 69 to 71 has recorded a finding that they were transactions of sale
and purchase of the said Securities qua the plaintiff. On a plain reading of
the entire plaint it is found that the trial Court misdirected itself while
considering the transactions of sale and purchase of Government
Securities to be transactions of exchange. The ratio of the decision in
Nandakishor Labbhai Mehta (supra) does not assist the defendant nos. 1
and 2 in these facts.
22. In this context it is also to be noted that during pendency of
suit the plaint was amended by adding paragraphs 8A to 8E. In these
FA361.10(J) 33/53
amended paragraphs reference was made by the plaintiff to the
investigation made by the police authorities in Crime No.75/2002 which
was thereafter registered as Criminal Case No.847/2002 pursuant to the
report lodged by the Divisional Joint Registrar on 15.05.2002 - Exhibit
295. Offences punishable under Sections 205, 406, 409, 420, 467, 470,
120 B read with Section 34 of the Indian Penal Code came to be registered
against various accused including the defendant nos. 1 to 6 herein.
Reference was also made to various orders passed in the criminal
proceedings as well as the fact that the Board of Directors of the plaintiff-
Bank came to be dissolved in proceedings initiated by the Authorities
under the Act of 1960. In the light of the averments in these paragraphs,
the trial Court framed Issue No.6-A as to whether the plaintiff had proved
that both the transactions were vitiated by fraud, cheating, forgery,
criminal breach of trust, criminal misappropriation and criminal
conspiracy by the defendant nos. 1 to 6 as abetted by the defendant no.7.
On a reading of plaint as a whole we find that the case as pleaded was
basically one of breach of the agreement/contract entered into between
the plaintiff and the defendant no.1 and its subsequent acts in collusion
between the defendant nos. 3 to 6. It is a fact that criminal trial for which
offences were registered against the accused including the defendant nos.
1 to 6 herein proceeded separately. In these facts it is found that it was
not necessary to frame Issue No.6-A and that the trial Court ought to have
FA361.10(J) 34/53
examined the claim of the plaintiff in the backdrop of the pleadings that
there was breach of agreement/contract as entered into between the
plaintiff and the defendant no.1 pursuant to the transactions dated
15.01.2002 and 28.02.2002. In any event it is found that the pleadings in
the plaint insofar as they pertain to allegations with regard to fraud,
criminal misappropriation, criminal breach of trust etc. fall short of the
requirements of Order VI Rule 4 of the Code and hence Issue No. 6 A as
framed was redundant. Point No.3 stands answered accordingly.
As to Point No.4 :
23. The plaintiff having proved that Security no.1 pursuant to
transaction dated 15.01.2002 had been sold to the defendant no. 1 and
the said defendant having failed to sell Security No.2 to the plaintiff, the
plaintiff is entitled to the return of Security No.1. It is an admitted fact
that the defendant no. 1 had paid differential amount of Rs.65,98,466.66
to the plaintiff. Notwithstanding the fact that the defendant no. 1 further
alienated Security No.1 without the consent of the plaintiff, the defendant
no. 1 would be liable to make good the value of Security No.1 by paying
the same to the plaintiff. The alternate prayer made by the plaintiff in that
regard is liable to be granted.
As regards Security No.3 pursuant to transaction dated
28.02.2002 the plaintiff has proved that said security was handed over to
the defendant nos. 1 and 3. The defendant no.3 has paid the differential
FA361.10(J) 35/53
amount of Rs.60,76,097.48 to the plaintiff. However Security No.4 as
agreed to be sold to the plaintiff has not been accordingly delivered by the
defendant nos. 1 and 3 to the plaintiff.
Since it has been proved that the defendant no.3 had paid the
differential amount for the transaction dated 28.02.2002 to the plaintiff, it
would be the liability of the defendant no.3 to make good the same to the
extent of Rs.4,00,00,000/-. It has further come on record that the MKVDC
Bonds worth Rs.1,50,00,000/- were lying with the defendant no.7 at the
instance of the defendant no.2 who claims to have pledged the same with
the defendant no.7. It is an admitted position on record that the the
MKVDC Bonds valued at Rs.1,50,00,000/- which were part of Security
No.3 were seized by the investigating agency in Crime No.75/2002 from
the defendant no.7. The learned Magistrate on 14.03.2004 directed the
investigating agency to hand over the said Bonds to the plaintiff in
exercise of power under Section 457 of the Code of Criminal Procedure,
1973. This order was challenged by the defendant no.7 before the
Sessions Court but the order passed by the learned Magistrate was
maintained. In Criminal Writ Petition No.66/2006 this Court while
maintaining the impugned orders directed creation of a separate account
by the plaintiff in respect of the said Bonds. These orders are at Exhibits
178 to 180. It is thus clear that the plaintiff is entitled to the return of
value of these MKVDC Bonds that were seized from the defendant no.7.
FA361.10(J) 36/53
This aspect has been further dealt with while answering Point No.5.
24. Since it has been found that the plaintiff is entitled to receive
the value of Security No.1 to the extent of Rs.4,00,00,000/- and in respect
of Security No.3 to the extent of Rs.4,00,00,000/-, the plaintiff would also
be entitled to receive that value along with interest in view of the
provisions of Section 34(1) of the Code. It cannot be disputed that the
transactions dated 15.01.2002 and 28.02.2002 are commercial
transactions. In the plaint the plaintiff has claimed interest @ 24% per
annum. There is however no evidence brought on record by the plaintiff
to establish its entitlement to interest @ 24% per annum. Considering the
fact that both these transactions were entered into in 2002, we deem it
reasonable to award interest @12% per annum on the principal amount.
The plaintiff would be entitled to receive interest on the principal sum of
Rs.4,00,00,000/- for both the transactions from the date of filing of the
suit which is 12.09.2002 till realisation.
25. As regards the personal liability of the Directors of the
defendant nos. 1, 3 and 5 is concerned, we find that the plaintiff has not
pleaded the basis on which these Directors can be held personally liable
for the transactions entered into by the respective Companies with the
plaintiff. The transactions dated 15.01.2002 and 28.02.2002 are
contractual in nature. The defendant no.2 in the written statement at
FA361.10(J) 37/53
Exhibit 107 has raised the defence that as Director of the defendant no.1
Company he cannot be made personally liable for the acts of the
Company. The defendant no.4 in the written statement at Exhibit 18 has
denied his personal liability under the alleged transactions. Similarly,
defendant no.5(a) and 5(b) in their written statements at Exhibits 100
and 104 have denied any personal liability for the acts of the defendant
no.5 Company of which it was alleged that they were Directors.
On first principles, a private limited Company is a separate
legal entity that is entitled to sue and be sued as a 'juristic' person. Unless
it is shown from the Articles of Association that a Director could be held
personally responsible for the acts of the Company there would be no
basis whatsoever to infer the same. Neither are there any pleadings in the
plaint to that effect nor is there any documentary evidence brought on
record by the plaintiff to indicate the basis on which the Directors could be
held personally liable for the acts of the Company. The liability if any
would be of the Company that has entered into the transactions in
question. As observed in Sangeeta Jewels Private Limited and others Vs.
Ajay Kumar Jain ILR (2008) II Delhi 638 a Company is distinct from its
Directors and shareholders. The Directors of a Company would be liable
for misappropriation of the Company's funds and other misfeasance but
not for ordinary contractual liability of the Company. The
communications at Exhibits 190 and 191 have been signed by the
FA361.10(J) 38/53
authorised signatory of the defendant no.1 and as held in Panchanan
Dhara and others Vs. Monmatha Nath Maity (dead) through LRs and
another, 2006(5) Mh.L.J. 209 on the document being executed by the
Company, it is the Company and not the persons signing the same that
can sue or be sued on the contract. Point No.4 stands answered
accordingly.
As to Point No.5 :
26. According to the plaintiff, Security No.3 included MKVDC
Bonds worth Rs.1,50,00,000/-. As per transaction dated 28.02.2002 these
bonds along with other Government Securities worth Rs.4,00,00,000/-
were to be sold and in lieu thereof the plaintiff was to receive Security
No.4. Pursuant to registration of Crime No.75/2002 the police authorities
seized Security No.3 and it was revealed that the MKVDC Bonds were
lying with the defendant no.7. By amending the plaint, it was pleaded in
paragraph 8-A that the defendant no.1 had no legal right to retain the
MKVDC Bonds and any transaction in that regard was not binding on the
plaintiff. The defendant no.7 in its written statement took the stand that
the defendant no.2 had availed cash credit facility to the tune of
Rs.20,00,00,000/- from the defendant no.7 and the MKVDC Bonds that
were part of Security No.3 were pledged with it as security for the cash
credit facility. It was stated that the defendant no.7 had a banker's lien on
the said Bonds and hence the plaintiff had no right to seek the said Bonds.
FA361.10(J) 39/53
The learned Judge of the trial Court while considering Issue
no.19 A was pleased to observe that in paragraph 8-A of the plaint the
plaintiff had pleaded that the defendant nos. 1 to 6 had unauthorizedly
and nominally pledged the said Bonds worth Rs.1,50,00,000/- with the
defendant no.7 . The pledge was admitted by the plaintiff but was claimed
to be nominal. It held that in view of these pleadings, it was for the
plaintiff to prove that the said pledge was nominal and the burden was on
the plaintiff to prove this fact. As the pledge was admitted, no further
proof of its existence was required. Further by observing that since the
transaction dated 28.02.2002 had not been proved and as the defendant
no.7 had no means of knowing the transaction between the plaintiff and
the other defendants, the defendant no.7 could not be blamed if it
accepted the MKVDC Bonds as security for the cash credit facility. On that
basis it was held that the defendant no.7 had lien over the MKVDC Bonds.
27. In our view this finding recorded by the learned Judge of the
trial Court against Issue No.19 A is perverse. Paragraph 8-A of the plaint
contains the following pleadings :
"Para 8-A : ..... It is therefore submitted that the said
Government Security Nos.1 and 3 were entrusted to the
defendants 1 and 2 for reinvestment but the defendants
1 to 6, from out of said securities unauthorizedly
nominally pledged the Maharashtra Krishna Valley
Development Corporation Bonds, 2005 (MKVDC) worth
Rs.1.50 Crores with the defendant no.7 by committing
FA361.10(J) 40/53
criminal breach of trust and thereby dishonestly
misappropriated the same and converted the same for
their own use. The alleged pledge, if any, is not binding
on the plaintiff and the same is fraudulent, collusive,
unauthorised, illegal void ab initio and in fact it
amounts to criminal breach of trust and criminal
misappropriation."
The defendant nos. 1 and 2 in paragraph 8 of their written
statement have pleaded as under :
"These defendants are not aware that whether the MKVDC
Bonds are lying with the defendant no.7 and therefore do
not admit the same"
In paragraph 8-A, it has been reiterated that the defendant nos. 1 and 2
were concerned only with Security No.1 and that the plaintiff had a
separate agreement with the defendant no.3 in respect of Security No.3.
Thus the defendant no.2 who is alleged to have pledged the aforesaid
MKVDC Bonds with the defendant no.7 by way of security for the cash
credit facility availed by him did not raise any specific pleading in that
regard in the joint written statement of the defendant nos. 1 and 2.
The defendant no.7 in its written statement in paragraph 8-E
has pleaded as under :
"8-E : ..........This defendant with reference to its
allegations made by the plaintiff against this defendant
has already made which stands very clear in the written
statement filed on record and hence all the allegations
made against the defendant and more particularly with
reference to MKVDC Bonds 2005 to the tune of Rs.1.50
Crores is denied and this defendant at the appropriate
FA361.10(J) 41/53
time shall prove its status as pledgee under the relevant
provisions of the Contract Act. Rest of the contents are
denied for want of knowledge."
28. The aforesaid pleadings thus indicate that it is the specific
assertion of the plaintiff that from Security No.3 the defendant nos. 1 to 6
had unauthorizedly and nominally pledged the said Bonds with the
defendant no.7 by committing criminal breach of trust and had
dishonestly misappropriated the same. The alleged pledge was not
binding on the plaintiff. These pleadings can hardly be said to contain any
admission on the part of the plaintiff to hold that the plaintiff was
admitting the pledge but was claiming it to be nominal as observed in
paragraph 186 of the impugned judgment. On the contrary the plaintiff
pleaded that the alleged pledge was fraudulent and not bindng on it. The
defendant no.7 took upon itself the burden to prove its status as a pledgee
under the relevant provisions of the Indian Contract Act, 1872. Thus
when the plaintiff had challenged the very transaction of the Bonds being
pledged with the defendant no.7 and the defendant no.7 having asserted
that it was a pledgee as it had advanced an amount of Rs.20,00,00,000/-
to the defendant no.2, the burden to prove a valid existing pledge was on
the defendant no.7. It is material to note that the defendant no.7 did not
choose to examine any witness on its behalf. As a result the document of
pledge which the defendant no.7 claimed to have been executed by the
defendant no.2 was not brought on record before the trial Court. The
FA361.10(J) 42/53
defendant no.7 remained content with cross-examining PW 2 at Exhibit
281. The mere statement of the Investigating Officer that during the
course of investigation, he found that the MKVDC Bonds were pledged
with the defendant no.7 can hardly amount to the proof of existence of
any pledge in the absence of the document of pledge itself. The statement
of PW 2 who was an Investigating Officer in Crime No.75/2002 cannot be
treated as any admission on the part of the plaintiff as to existence of a
valid pledge in favour of the defendant no.7. It is found that ignoring the
specific pleadings of the plaintiff as well as the defendant no.7 as
reproduced hereinabove, the trial Court erred in holding that the
defendant no.7 had a lien over the said Bonds.
29. At this stage it is necessary to refer to the orders passed in
proceedings initiated by the plaintiff with regard to the MKVDC Bonds.
During the course of investigation of Crime No. 75/2002 the investigating
officer - Exhibit 281 had seized the MKVDC Bonds from the defendant
no.7. The plaintiff had thereafter moved an application under Section
451/457 of the Code of Criminal Procedure, 1973 seeking delivery of the
said Bonds on Supratnama. The trial Court by its order dated 13.04.2004
- Exhibit 178 allowed the said application on the condition that the said
securities would not be transferred without prior permission of the Court.
This order was confirmed by the Sessions Court in Criminal Revision
FA361.10(J) 43/53
No.46/2004 on 14.08.2006 - Exhibit 179. The defendant no.7 challenged
this order by preferring Criminal Writ Petition No.66/2007 before this
Court. In the order dated 05.07.2007 - Exhibit 180 it has been noted that
the MKVDC Bonds worth Rs.1,50,00,000/- have been placed in Account
No. ISIN-6007 with the Maharashtra State Co-operative Bank Ltd. The
interest accrued on said Bonds was being deposited in Current Account
No. CA DFA-365 at the plaintiff bank. This amount was directed not to be
withdrawn without any specific order in that regard. The aforesaid
Criminal Writ Petition was disposed of on 17.09.2007 by directing a
separate account to be maintained by the plaintiff bank in respect of the
said Bonds.
By another order passed in Miscellaneous Criminal Case
No. 335/2006 dated 21.09.2006 - Exhibit 182 the learned Magistrate
directed the re-investment of the MKVDC Bonds in Government Securities
through S.G.L. Account in Demat Form under the head "Held to maturity
2016".
It is thus clear that during pendency of the suit the MKVDC
Bonds worth Rs.1,50,00,000/- had matured on 31.03.2005 and were
thereafter permitted to be re-invested by maintaining an SGL Account.
The interest accrued is being deposited in a separate account maintained
at the plaintiff bank. In the light of the findings recorded against Point
No.4 the plaintiff would be entitled to receive the proceeds of the re-
FA361.10(J) 44/53
invested Government Securities worth Rs.1,50,00,000/-.
[
30. According to the learned counsel for the defendant no.7 the
material on record with regard to the MKVDC Bonds was sufficient to hold
that the defendant no.7 had proved that the said Bonds were pledged with
it and that it had banker's lien over the same. As stated above, in the light
of the pleadings of the plaintiff and the defendant no.7, the burden to
bring on record the document of pledge and prove that the Bonds had
been validly pledged by the defendant no.2 was on the defendant no.7. It
is a fact that the said Bonds had been seized during the course of
investigation from the defendant no.7 by the investigating agency.
However nothing prevented the defendant no.7 from adopting other
permissible modes for bringing the Bonds on record and proving the
pledge in its favour. Merely because the transaction with regard to
Security No.3 was approved by the Officers of the plaintiff or that blank
transfer forms duly signed were handed over to the employees of the
defendant no.1/defendant no.3 or that the MKVDC Bonds were seized
from the defendant no.7, the same would not be sufficient to hold that the
defendant no.2 had validly pledged the said Bonds with the defendant
no.7. There again cannot be any quarrel with the ratio of the decision in
Central Bank of India (supra) relied upon by the learned counsel for the
defendant no.7 as regards the rights of a pawnee and the provisions of
FA361.10(J) 45/53
Sections 172 to 176 of the Indian Contract Act, 1872 are clear in that
regard. However, in the facts of the present case when the document of
pledge itself was not brought on record by the defendant no.7 for the
reasons best known to it, it will have to be held that the defendant no.7
had failed to prove that it had banker's lien over the MKVDC Bonds on the
ground that the same were pledged with it by the defendant no.2. The
plaintiff would be entitled to the return of the value of the MKVDC Bonds
and the defendant no.7 would be free to pursue its remedies against the
defendant no.2 in that regard. Point No.5 stands answered accordingly.
As to Point No.6 :
31. The trial Court has held the suit as filed to be bad for non-
joinder of necessary parties. According to the trial Court all subsequent
transferees of the securities sold by the plaintiff to the defendant nos. 1
and 2 ought to have impleaded as defendants in the suit. For determining
the presence of a party in a suit, reference may be made to the provisions
of Order I Rule 3 of the Code. If the plaintiff claims any right to relief in
respect of or arising out of a transaction against such persons either jointly
or severally those persons have to be joined as defendants. In the present
case the plaintiff claims that Security Nos. 1 and 3 were sold to the
defendant nos. 1 and 2 and the plaintiff had agreed to purchase Security
Nos. 2 and 4 from those defendants. According to the plaintiff the
defendants instead of selling Security Nos. 2 and 4 to the plaintiff, they
FA361.10(J) 46/53
proceeded to illegally transfer Security Nos. 1 and 3 to third parties. The
plaintiff was seeking return of Security Nos. 1 and 3 from the defendants
and in the alternative the relief of value of those securities with interest
was claimed. Since according to the plaintiff it had entered into such
agreement with the defendant nos. 1 and 2, it was not concerned with the
further transactions undertaken by those defendants. It was not expected
of the plaintiff to join each subsequent transferee of those securities
especially when its privity contract was only with the defendant nos. 1 and
2. Since the plaintiff in the alternative had claimed monetary relief based
on the value of the securities no relief was being sought against any
subsequent transferees pursuant to transfers effected by the defendant
nos. 1 and 2. The subsequent transferees were not necessary parties to
the suit and hence the trial Court had committed an error in recording a
finding that in absence of such subsequent transferees pursuant to the
transfers effected by the defendant nos. 1 and 2 the suit was bad for non-
joinder of necessary parties. Similarly, only on the ground that the
Directors and officers of the plaintiff Bank were arrayed as accused in
Criminal Case No.847/2002 and charge-sheeted for criminal conspiracy,
fraud, etc. they were not necessary parties to the present suit. The suit
has been filed by the Administrator appointed on the Bank. For the same
reason presence of all Directors of the defendant nos. 1, 3 and 5 as well as
all the Directors of the plaintiff's Bank was not necessary. That finding
FA361.10(J) 47/53
recorded by the trial Court is set aside and it is held that in the light of the
nature of reliefs sought by the plaintiff all necessary parties had been
joined as defendants. Point No.6 stands answered accordingly.
As to Point No.7:
32. The defendant no.7 is a Co-operative Bank registered under the
provisions of the Act of 1960. In its written statement it has raised a plea
that the plaintiff did not issue any notice to it under Section 164 of the Act
of 1960 and therefore the suit as filed against it was not maintainable. In
the plaint it has been pleaded by the plaintiff that it had entered into
transactions dated 15.01.2002 and 28.02.2002 with the defendant nos. 1
and 2. The said defendants were to sell Security Nos. 2 and 4 to the
plaintiff after having purchased Security Nos. 1 and 3 from it. It has
further pleaded that the said defendants failed to deliver Security Nos. 2
and 4 as agreed. It has further pleaded that during the course of
investigation in Crime No.75/2002 it was noticed that the MKVDC Bonds
worth Rs.1,50,00,000/- were lying with the defendant no.7. According to
the plaintiff the said Bonds were standing in the name of the plaintiff and
the same were never transferred to anybody else. In the light of these
pleadings it was prayed that insofar as the transaction dated 28.02.2002
the defendant nos. 1 to 7 be directed to deliver Security No.4 having face
value of Rs.5,50,00,000/- along with interest or in the alternative, return
Security No.3 that had been handed over to them.
FA361.10(J) 48/53
From the averments in the plaint it can be seen that the
plaintiff was pursuing its legal right of re-claiming the MKVDC Bonds that
were found to be with the defendant no.7. The plaintiff claims that the
defendant nos. 1 and 2 without any authority in law had sought to
transfer the same in favour of the defendant no.7. The plaintiff does not
claim any privity of contract with the defendant no.7. Since the plaintiff
was pursuing its own legal right, it cannot be said that the prayer as made
qua the defendant no.7 in any manner is "in respect of any act touching
the business of the society". Since the plaintiff was pursuing its own legal
right and was re-claiming the MKVDC Bonds standing in its name from the
possessor thereof, no notice under Section 164 of the Act of 1960 was
required to be issued to the defendant no.7. Reference in this regard can
be made to the decision in Gajanan Eknath Sonankar vs. Shegaon Shri
Agrasen Co-operative Credit Society Ltd. and anr. 2015 (1) Mh L J 579.
The learned Judge of the trial Court committed an error in holding that
for want of notice under Section 164 of the Act of 1960, the suit as filed
against the defendant no. 7 was not tenable. That finding recorded by the
trial Court is set aside. Point No.7 stands answered accordingly.
As to point No.8-i to 8-iii
33. According to the learned counsel for the plaintiff the trial Court
in the impugned judgment relied upon various Circulars and Notifications
while answering Issue No.11. It was submitted that no opportunity was
FA361.10(J) 49/53
made available to the plaintiff to address the Court on the aforesaid
Circulars and Notifications as a result of which prejudice was caused to
the plaintiff. It is a fact that while answering Issue No.11 the trial Court
referred to certain Notifications issued by the Ministry of Finance as well
as the Securities and Exchange Board of India. It also referred to Circulars
issued by the Reserve Bank of India. In paragraph 206 of the impugned
judgment it was stated that none of the parties had filed copies of the said
Notifications on record. The Court took upon itself to refer to said
Circulars and Notifications that were taken on record at Exhibits 479 to
481. We find that the trial Court ought to have brought it to the notice of
the parties that it intended to rely upon the said Circulars and
Notifications while adjudicating the suit. If such notice would have been
given to the parties they could have addressed the Court effectively. In
absence of any such opportunity the trial Court was not justified in relying
upon the same while holding against the plaintiff. Such pleas were also
not raised by any of the defendants by challenging the aforesaid
transactions as being contrary to the said Circulars and Notifications. It is
thus held that the trial Court was not justified in placing reliance upon
these Circulars and Notifications.
It was urged on behalf of the learned counsel for the plaintiff
that when the judgment was pronounced by the Court on 25.01.2010 it
was merely stated that the suit was dismissed. However when the
FA361.10(J) 50/53
certified copy of the judgment was received, it was noticed that the suit
was dismissed with costs. Reference was made to the roznama of the
proceedings as maintained by the trial Court. We do not find any basis to
hold that when the judgment was pronounced the suit was merely
dismissed and the dismissal of the suit with costs only found place in the
certified copy of the judgment. The roznama of the proceedings records
that on 25.01.2010 the suit was dismissed with costs. The said contention
of the plaintiff therefore cannot be accepted. However since we find the
plaintiff entitled to reliefs as prayed for, the direction of dismissal of the
suit with costs would not survive.
Yet another contention raised by the plaintiff was that when
the suit was heard for considerable period by the learned Judge of the
trial Court he was holding the charge of the Court of 3rd Joint Civil Judge,
Senior Division, Amravati. However while deciding the suit the learned
Judge was holding the charge of the Court of 4 th Joint Civil Judge, Senior
Division, Amravati. On this point also it was urged that the suit ought to
have been heard and decided finally by the 3 rd Joint Civil Judge, Senior
Division, Amravati. We do not find any merit in this submission as the
record indicates that the learned Judge who conducted the trial and heard
the learned counsel thereafter has himself decided the suit. It may be that
for certain period the learned Judge was discharging the duties as the
3rd Joint Civil Judge, Senior Division, Amravati. No prejudice whatsoever
FA361.10(J) 51/53
has been pointed out in this regard and nothing much turns on this
submission. The ratio of the decision in K.V.Rami Reddi (supra) does not
apply to the facts of the present case. Point Nos.8-i to 8-iii stand answered
accordingly.
34. In the light of the findings recorded against the points that have
been framed for adjudication, we record our conclusions as under :
(a) The plaintiff has proved that it had entered into
transaction dated 15.01.2002 with the defendant no.1 for sale of
Security No.1 valued at Rs.4,00,00,000/-/ These securities were
delivered to the defendant no.1 on 28.01.2002. The defendant no.1
paid the difference amount of Rs.65,98,466.66 to the plaintiff. The
defendant no.1 however failed to deliver Security No.2 to the
plaintiff as agreed.
(b) The plaintiff has proved that it had entered into
transaction dated 28.02.2002 with the defendant nos. 1 and 3 for
sale of Security No.3 valued at Rs.5,50,00,000/-. The said securities
were delivered to the defendant no.1 on 07.03.2002. The defendant
no.3 paid the difference amount of Rs.60,76,097.48 through thirteen
demand drafts. The defendant nos. 1 and 3 however failed to deliver
Security No.4 to the plaintiff as agreed.
(c) The transactions dated 15.01.2002 and 28.02.2002 were
in the nature of sale and purchase of securities and not exchange of
securities.
(d) The plaintiff has proved that it is entitled to the return of
Security No.1 valued at Rs.4,00,00,000/- from the defendant no.1.
FA361.10(J) 52/53
The plaintiff has proved that it is entitled to the return of Security
No.3 to the extent of Rs.4,00,00,000/- from the defendant no. 3 and
to the extent of Rs.1,50,00,000/- from the defendant no. 7. Since the
plaintiff had parted with these securities, it is entitled to receive the
value equivalent to said securities including those that were re-
invested pursuant to orders passed in that regard.
(e) The defendant no.7 has failed to prove that it had banker's
lien over the MKVDC Bonds worth Rs.1,50,00,000/- that were
furnished by the defendant no.2 by way of security for the cash credit
facility advanced to him. The defendant no.7 is free to pursue its
remedies against the defendant no.2 if so advised in that regard.
(f) The suit is not bad for non-joinder of necessary parties.
(g) Notice under Section 164 of the Act of 1960 was not liable
to be issued to the defendant no.7 and the suit is not bad against the
said defendant on that count.
(h) The trial Court was not justified in relying upon various
Circulars and Notifications without giving due notice to the parties
that it intended to rely upon the same. The adjudication of the suit
by the Court of learned 4th Joint Civil Judge, Senior Division,
Amravati is legal and proper.
35. In the light of aforesaid discussion, the following order is
passed :
(i) The judgment dated 25.01.2010 in S.C.S.No.165/2002 is
quashed and set aside.
(ii) The plaintiff is entitled to receive the value of Security No.1 to
the extent of Rs.4,00,00,000/- from the defendant no.1 along with interest
@12% per annum from 12.09.2002 till realisation.
FA361.10(J) 53/53
(iii) The plaintiff is entitled to receive the value of Security No.3 in
the following manner :
(a) Amount of Rs.4,00,00,000/- along with interest
@12% per annum from 12.09.2002 till realisation from the
defendant no. 3.
(b) MKVDC Bonds worth Rs.1,50,00,000/- seized
from the defendant no.7 which were subsequently re-
invested. The plaintiff is entitled to receive the same in its
present form. The plaintiff is also entitled to receive the
amount of interest earned by the Bonds till their maturity as
well as interest earned after their re-investment.
(iv) The suit stands dismissed against the other defendants.
(v) First Appeal No.361/2010 is allowed in aforesaid terms. The
parties shall bear their own costs.
(vi) This judgment shall operate after period of eight weeks from
today.
JUDGE JUDGE
Andurkar..
In view of interim orders dated 01.12.2010 and 10.12.2010 the
appellant had furnished security towards the costs awarded by the trial
Court. The appellant is free to have the said security discharged.
JUDGE JUDGE
Andurkar..
