A.B.N. Amro Bank vs Indian Railway Finance ...
1995 Latest Caselaw 862 Del

JUDGMENT

Dalveer Bhandari, J.

(1) Abn Amro Bank N.V. has filed the company appeal under Section 10(F) of the Companies Act, in which a prayer has been made to set aside the order dated August 25, 1994 passed by the company law board. It is also prayed in the appeal that the Company petition filed by the appellant before the Company Law Board be allowed and respondent no.1 be directed to rectify the register maintained by it in respect of the said IRFC bonds, by entering the appellant's name as the holder of the said 1 lakh 9% (tax free) secured redeemable non-convertible (VIth A series 1991-92) Bonds of Rs.1000.00 each and to restore to the appellant the said letter of allotment, after making due endorsements and issue bonds certificate in respect of the said bonds to the appellant along with interest warrants.

(2) The appellant has also prayed that respondents no.1 to 4 be directed to pay compensation for non-payment of interest on the said IRFC bonds on and after June 26, 1992, comprising the taxable amount of interest/compensation on the IRFC Bonds payable up to October 1, 1994, and interest/compensation for non-payment of these amounts from the due dates till October 1, 1994. It is also prayed by the appellant that respondents 1 to 4 be directed to pay to the appellant, as specified in para 21 of the petition, on the Installment of interest becoming due on the said IRFC Bonds pendente lite and future.

(3) During the pendency of this matter before this Court, respondent no.4 Standard Chartered Bank, filed a Company application No.388/95. The principal prayer in this Company Petition is that the impugned judgment of the Company Law Board is contrary to the settled law which has been declared by the Supreme Court in Civil Appeal no.3206/95, Canara Bank vs. Nuclear Power Corporation of India Ltd.. It is prayed that the order of the Company Law Board be set aside and the petition be transferred to the Special Court constituted under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992.

(4) Mrs. Pallavi Shroff, learned counsel for the applicant Standard Chartered Bank, submitted that the Special Court (Trial of Offences relating to Transactions in Securities) Amendment Ordinance, 1994 was brought into effect on 25th January, 1994 and Section 9A was inserted. Section 9A reads as under:- "9A.Jurisdiction, powers, authority and procedure of Special Court in civil matters -- (1) On and from the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, the Special Court shall exercise all such jurisdiction, powers and authority as were exercisable, immediately before such commencement, by any civil court in relation to any matter or claim-- (a)relation to any property standing attached under sub-section (3) of section (3): (b) arising out of transactions in securities entered into after the 1st day of April, 1991 and on or before the 6th day of June, 1992, in which a person notified under sub- section (2) of Section 3 is involved as a party, broker, intermediary or in any other manner; (2) Every suit, claim or other legal proceedings (other than on appeal) pending before any court immediately before the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, being a suit claim or proceeding, the cause of action whereon it is based is such that it would have been, if it had arisen after such commencement, within the jurisdiction of the Special Court under sub-section (1) shall stand transferred on such commencement to the Special Court and the Special Court may, on receipt of the records of such suit, claim or other legal proceedings, proceed to deal with it so far as may be, in the same manner as a suit, claim or legal proceeding from the stage which was reached before such transfer or from any earlier stage of de novo as the Special Court may deem fit. (3) On and from the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment, claim referred to in sub-section (1). (4) While dealing with cases relating to any matter or claim under this section, the Special Court shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and subject to the other provisions of this Act and of any rules, the Special Court shall have the power to regulate its own procedure. (5) Without prejudice to the other powers conferred under this Act, the Special Court shall have for the purposes of discharging its functions under this section, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908). While trying a suit, in respect of the following matters, namely: (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) subject to the provisions of the sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any public record or document or copy of such record or document from any offence; (e) issuing commissions for the examination or witnesses or documents; (f) reviewing its decisions; (g) dismissing a case for default or deciding it ex parte; (h) setting aside any order of dismissal of any case for default or any order passed by it ex parte; and (i) any other matter which may be prescribed by the Central Government under sub-section (1) of section 14."

(5) In the said case of Canara Bank, their Lordships of the Supreme Court have held that under Section 111 of the Companies Act, as amended w.e.f. 31.5.1991, Company Law Board performs the functions which were performed by the Courts of Civil Judicature under Section 155. It is empowered to make orders directing rectification of the Company's registers, as to damages, costs and incidental and consequential orders. It may decide any question relating to the title of any person who is a party before it to have his name entered upon the Company's register and any question which is necessary or expedient to decide. It may make interim orders. Failure to comply with any orders would make the company liable with a fine. In regard to all these matters, it has exclusive jurisdiction (except under the provisions of the Special Courts Act, which is the issue before us). In exercising its function under Section 111, the Company Law Board must and does act judicially. Its orders are appealable. The Company Law Board is a permanent body constituted under a Statute. It is difficult to see how it can be said to be anything other than a court, particularly for the purposes of Section 9A of the Special Courts Act.

(6) She also submitted that, before the said amendment, only criminal offences were dealt with, now other than criminal matters are also dealt by the Special Courts. All the transactions during the interregnum period of 1st April, 1991 to 6th June, 1992 have to be dealt with by the Special Courts after the amendment. Admittedly the transaction in question had taken place during the said period and the present appeal falls in that category.

(7) The brief facts relevant to the present controversy are recapitulated as under. The Appellant Abn Amro Bank purchased Npc Bonds of Rs.100.00 each at a price Rs.97.00 plus accrued interest,, worth Rs.9.76 crores through N.K. Aggarwal, respondent no.3, who purchased these bonds from the Andhra Finance Services. The said Npc bonds could not be delivered by Naresh Aggarwala, respondent no.3, and in turn, he gave bonds of respondent no.1, Indian Railway Finance Company Ltd., (IRFC) as security. The petitioner wanted these bonds to be registered in its name. Respondent no.1 did not register them in the name of the petitioner and they filed the petition before the Company Judge.

(8) In accordance with the instructions of N.K. Aggarwala, respondent no.3, Abn Amro Bank issued an A/c Payee Cheque in favor of Andhra Bank, Bombay for the aforesaid amount and attached a Memorandum which represents the cost of the Npc bonds purchased on behalf of the petitioner. It was delivered to N.K. Aggarwala on 9.3.92 and was encashed by the Payee on the same day. Respondent no.3 failed to deliver the said Npc Bonds purchased through him or a bank receipt in spite of repeated reminders. Instead on 18.3.92, respondent no.3 delivered to the appellant the original letter of allotment covering 1 lakh 9% IRFC secured redeemable of Rs.1000 fully paid-up (VIA series) Bonds 1991-92 issued by IRFC Ltd. Respondent no.3 delivered to the petitioner Amro Bank a transfer deed in respect of the said bonds duly executed in blank by Karur Vysya Bank Ltd., respondent no.2, the last registered holder of the said IRFC Bonds. The appellant accepted the delivery of the letter of allotment and transfer deed in respect of the IRFC Bonds on the understanding that it would hold these bonds as alternative security pending delivery of Npc bonds. According to the petitioners, on delivery of the letter of allotment, the ownership of IRFC bonds were transferred to them as purchaser in due course and for valuable consideration.

(9) Respondent no.3 did not deliver Npc Bonds by 25.6.92 which was the ultimate date fixed by the petitioner for delivery, on the same day, the petitioner bank lodged bonds with IRFC who did not register the bonds as the ownership was disputed. According to the petitioner, respondent no.1 IRFC is bound to register the bonds on the intimation of the transfer submitted along with the letter of allotment as per the terms and conditions of the issue.

(10) Mr. Sareen, learned counsel for N.K. Aggarwala at the outset submitted that as far as his client is concerned, it makes no difference whether the matter is heard and disposed of by this court or it is sent to the Special Court for disposal.

(11) Mr. G. Sarangan who appeared on behalf of respondent no.2 Karur Vyasa Bank submitted that only this court has the jurisdiction and not the special court and consequently the petition need not be transferred to the Special Court. He submitted that N.K. Aggarwal is not a notified person. The only notified person is Hiten Dalal. There has been no dealing with Hiten Dalal. The Bank had dealings through respondent no.3, N.K. Aggarwala. According to him, neither respondent no.3 nor Karur Vyasa Bank nor the Andhra Bank are notified persons. So this matter cannot be decided by the Special Courts.

(12) Mr. Koura, learned counsel repudiated submissions made by Mrs. Shroff and submitted that this court has jurisdiction to decide this matter and it must be decided by this Court. He placed reliance on Vasudev Gopalkrishna Tambwekar vs. Board of Liquidators, Happy Home Co-operative Housing Society Limited (in liquidation), reported as . In this judgment he relied on paras 8 to 10 of the judgment and particularly laid stress on following portion of the judgment which read as under : "THE exclusive jurisdiction of the Court of Small Causes arises only if the person invoking the jurisdiction of the Court alleges that the other party is a tenant or a landlord and the question is one which is referred to in S.28. Where the person so invoking does not set up the claim that the other party is a tenant or a landlord the defendant is not entitled to Court by an allegation that he stands in that relation qua the other and on that ground the Court has no jurisdiction to try the suit or proceeding or an application."

(13) This passage was relied primarily to strengthen the submission regarding jurisdiction and to convass that only the averments and allegations incorporated in the plaint alone should be taken into consideration for determining the question of jurisdiction. The averments mentioned in the written statement or reply cannot be looked into for determining the question of jurisdiction.

(14) Mr. kaura also placed reliance on Natraj Studios (P) Ltd. Vs Navrang Studios and another A.I.R. 1981 Sc page 537. In this case the Supreme Court has observed that a suit will have to be brought in the Court of small causes which has been made the Court of exclusive jurisdiction. For such a suit the tenant may deny the tenancy and denial by the tenant will not oust if ultimately the Court finds that the tenant is not denying. The suit will fail for that reason. He also placed reliance on Oil and Natural Gas Commission vs. Utpal Kumar Basu and others, . In this case the Court has observed that the question of territorial jurisdiction must be decided on the basis of facts pleaded in the petition.

(15) Mrs. Pallavi Sharoff, learned counsel appearing for the respondent submits that at the threshold for invoking the jurisdiction of any particular Court the facts pleaded in the petition may be taken into consideration. But in a case where a reply and a rejoinder have also been filed in that event the defense in the written statement and /or reply should also be taken into consideration while determining the question of jurisdiction . She also placed reliance on Ram Singh and others vs. Gram Panchayat, Mehalkalan and others, . In this case the court has observed that the plaintiffs cannot by drawing their plaint cleverly by not claiming a declaration that the land in question was not 'shamlat deh' confer jurisdiction on the civil court when by virtue of Section 13 of the Act the jurisdiction of civil Courts to try such suits had been taken away. In reply the panchayat had taken the stand that the land in question belongs to it 'shamlat deh' as it is not possible for the Civil Court to make a decree in favor of the plaintiff without deciding the question whether the property in question belongs to panchayat or not.

(17) In this case the question of jurisdiction was determined by taking into account the stand of the panchayat taken in reply. Therefore, in a case where pleadings are complete and reply and a rejoinder have also been filed, in that case to ignore the reply or rejoinder in deciding the question of jurisdiction, would be totally unjustified.

(18) Mrs. Shroff also relied on Natraj Studios (P) Ltd. Vs Navrang Studios and another Air 1981 S.C. p.537. In para 18, the Court has observed that defendant's plea regarding jurisdiction may straightaway oust the jurisdiction of ordinary Civil Court but if ultimately the plea of the defendant is accepted the suit must fail on this ground.

(19) Mrs. Shroff also submitted that the stand of the respondent in the reply or written statement would be relevant in determining the question of jurisdiction. She submitted that in this case there is no dispute that transaction had taken place during the interregnum period, then the only question which remains to be determined is that in view of Section 9A of the said Act this matter should be decided by this Court or this matter be sent to the Special Court for disposal. According to Naresh Aggarwal he was a broker of the Standard Chartered and his role as intermediately or at least in the category of any other person cannot be denied. She also referred to the affidavit filed by Naresh Aggarwal. The relevant portions are reproduced herein under to appreciate the controversy in its correct perspective.

A)THATthe answering respondent has been acting as a merchantile broker on behalf of Karur Vyasya Bank. b)Pursuant to an order placed upon the answering respondent, the answering respondent arranged for a transaction for sale of 9% IRFC bonds (Sixth 'A' series) bearing distinct Nos. 1500001 -1600000 from Karur Vysya Bank to Standard Chartered Bank through their representative/broker. c)The necessary consideration was paid to Karur Vysya Bank by Standard Chartered Bank. d)Karur Vysya Bank handed over the aforesaid bonds to the answering respondent for onward remittance to the purchaser viz Standard Chartered Bank. e)The aforesaid bonds were duly received by Sh. Hiten P. Dalal, representative/broker of M/s Standard Chartered Bank on 12.3.1992. A copy of the letter addressed to Sh. Hiten P Dalal is annexed hereto as Annexure R3/A. f)In the meantime an order was placed upon the answering respondent by the petitioner herein for the purchase of 9% IRFC bonds. In confirmation of the said order a specific contract Note No. 92/4878 was issued by the answering respondent on 9.3.92. g)That the answering respondent for the fulfilllment of said order contacted Sh. Hiten P Dalal representative/broker of Standard Chartered Bank. Sh. Hiten P Dalal forwarded the said 9% IRFC bonds to the answering respondent on 18.3.1992 and the same were delivered to the petitioner herein on the same very evening . The covering letter accompanying the said bonds from Sh. Hiten P Dalal dated 18.3.1992 and the covering letter forwarding the said bonds to Abn Ambro Bank dated 18.3.1992 which was duly received at 6.30 p.m. on 18.3.1992 by Abn Amro is being annexed hereto as Annexures R3/B and R3/C.

(20) In para '9' page 15 of the impugned judgment the Company Court observed that in the present case because the transaction was entered on a day which falls within the period referred to in the ordinance and there were references to in favor of a notified person. Therefore, according to the amended section 9A" the Company Court has no jurisdiction. The matter must be referred to the Special Court.

(21) Their Lordships of the Supreme Court in the case of Canara Bank (supra) has dealt with the aspect of amendment by which matters have to be referred to the Special Court. Their Lordships of the Supreme Court have mentioned that the Special Court Act was enacted to provide for establishment of the Special Court for the trial of offences relating to transactions in securities and matters connected therewith or incidental thereto.

(22) The Securities were defined in Section 2(c) to include shares, scrips, stocks, bonds, debentures, debenture stock, units and other marketable securities of a like nature, Government securities and rights or interest in securities. Section 3(1) provided for the appointment by the Central Government of a custodian. By reason of Section 3, custodian was empowered on being satisfied on information received that any person had been involved in any offence relating to transactions in securities after 1st April, 1991 and before 6th June, 1992, to notify the name of such person in the Official Gazette.

(23) The Supreme Court has also analysed Section 9A and mentioned that by reason of sub-section (1) of Section 9A, on and from the date of commencement of an Amendment Ordinance, the Special Court exercises all such jurisdiction, power and authority as were exercisable by any Civil court in relation to any matter. The Special Court is empowered to exercise such jurisdiction, power or authority in relation to the matters of claims therein specified. These matters or claims include those arising out of transaction in securities entered into between the aforesaid dates in which a notified person is involved.

(24) SUB-SECTION (2) of Section 9A deals with transfer of suits, claims or legal proceedings (other than an appeal) to the Special Court. Every suit, claim or other legal proceedings pending before any court, the cause of action whereof is such that, had it arisen after the amendment Act, the Suit, claim or legal proceedings can be initiated only before the Special Court and all such matters pending before other courts shall stand transferred to the Special Court. Every suit, claim or other legal proceedings pending before any court, the cause of action whereof arises out of transaction in securities entered into between the stated dates, in which a notified person is involved, would, therefore, if it is pending before any court on the date on which the amendment ordinance came into force, stand transferred to the Special Court. By reason of sub-section (3) of Section 9A, on and after commencement of the amendment ordinance, no court other than the Special Court may exercise any jurisdiction, power or authority in relation to any matter or claim referred to in sub-section (1) that is to say, in relation to any matter or claim inter alia, arising out of transaction in securities entered into between the stated dates in which notified person is involved.

(25) Their Lordships of the Supreme Court in the said case of Canara Bank also came to the conclusion that the Company Law Board is a court on the reasoning that it is divested of the jurisdiction, power and authority to entertain matters of claim arising out of transaction in securities entered into between the stated date in which a notified person is involved.

(26) The Supreme Court has also dealt with the aspect why the Special Court was enacted. A Joint Parliamentary Committee was constituted to investigate, what the Statement of Objects and Reasons, called, "the large-scale irregularities and malpractices which were noticed in the securities, transactions of banks."

(27) In the Report, the Joint Parliamentary Committee had mentioned about the scam and the relevant portion is quoted as under:- "THE scam is basically a deliberate and criminal misuse of Public funds through various types of securities transactions with the aim of illegally siphoning of funds of banks and PSUs to select brokers for speculative returns. The latest irregularities in the securities and banking transactions, are manifestations of this chronic disorder since they involved not only the Banks but also the stock market, financial institutions. Psu, the central bank of the country and ever the Ministry of Finance, other economic ministries in varying degrees. The most unfortunate aspect has been the emergence of a culture of non-accountability which permeated all sections of the Government and Banking system over the years. The state of the country's system of governance, the persistence of non - adherence to rules, regulations and guidelines, the alarming decay over the time in the banking systems has been fully exposed. These grave and numerous irregularities persisted for so long that eventually it was not the observance of regulations but their breach that came to be regarded and defended as "market practice". Through all these years the ability of the concerned authorities to effectively address themselves to the problems has been tested and found wanting. The consequences of these irregularities in securities and banking transactions are both financial and moral. During the period from July, 1991 to May, 1992 the most glaring proof of the nexus between the irregularities in banks and the overheating of stock market which came to light is explained by the graphic representations of the Bse Index and the fact that there was a sharp increase in securities transactions during the corresponding period of the banks involved in serious irregularities related with the scam. What is more apparent is the systematic and deliberate abuse of the system by certain unscrupulous elements. It is abundantly clear that the scam was the result of failure to check irregularities in the banking system and also liberalisation without adequate safeguards. There is also some evidence of collusion of big industrial houses playing an important role. It is because of these elements that the economy of the country had to suffer and while some gained thousands of crores, millions of investors lost their savings. The criminality of the perpetrators of the scam becomes all the more despicable as it was during this period that the country was passing through most trying times, economically and financially. An observation that the Committee has been constrained to make at a number of places in the succeeding chapters is that for all these got many have yet been identified and effectively punished."

(28) The Parliament having regard to the enormity of the scam and its vast ramification thought it proper that all matters arising out of the transaction in securities entered into between the stated dates in which person notified was involved should be brought before and tried by the same forum. The forum of special court had been invested earlier with jurisdiction to try persons accused of offences relating to transactions in securities entered into between the said dates. It was also required to give direction to custodian in regard to property belonging to persons notified which stood attached under the provisions of Special Court Act. The Object of amending Special Courts Act to invest the Special court with the power and authority to decide civil claims arising out of transactions in securities entered into between the stated dates in which a person notified was involved .

(29) The entire purpose of enacting the Special Court Act was that all the transactions of the interregnum period between the dates 1st April, 1991 and before 6th June, 1992 shall be dealt with by the Special Court for the reasons stated in the Statement of Objects and Reasons of the Act in which a notified person was involved.

(30) The bare reading of Section 9A of the Act, it is abundantly clear that it was the intention of the Parliament that transactions during the said interregnum period shall be dealt with by the Special Court.

(31) In the instant case, the transaction in question had taken place during the said interregnum period and Hiten Dalal who was involved in the transaction is a notified person.

(32) The Hon'ble Supreme Court in the Canara Bank's case while interpreting the amendment by which Section 9A was inserted has clearly laid down that transactions during the interregnum period (1-6-1991 to 6-6-1992) must be decided by the Special Court set up for dealing with such transactions in which a notified person is involved.

(33) In this view of the matter, the application is allowed and consequently this appeal and other connected applications shall stand transferred to the Special Court constituted under the provisions of the Special Court (Trial of offences relating to transaction in securities) Act, 1992.

(34) The petition is allowed and disposed of. There shall be no order as to costs.