2000 Supreme(SC) 803

2000(3) Supreme 413
Supreme Court of India
(From Bombay High Court)
B.N. Kirpal & R.P. Sethi, JJ.
Standard Chartered Bank & Anr. etc. —Appellants
versus
The Custodian & Anr. etc. —Respondents
Civil Appeal No. 762 of 1999
With
Civil Appeal No. 1878 of 1999
Decided on 18-4-2000
Counsel for the Parties :
For the Appearing Parties : K.K. Venugopal, K.S. Cooper, V.A. Bobde, Sr. Advocates, Tushad Cooper, Mahesh Agrawal, Gurukrishnakumar, Manish Jha, Prasant Pakhade, S. Prasad, S. Ganesh, Manish Parekh, P.S. Sudheer, P. Venugopal, K.J. John, Shiraz Rustomjee, A. Subba Rao, Gaurav Joshi, Mahesh Agrawal, H.S. Chandok, P.S. Sudheer, Advocates.

Important Point
If the pledge extends to such natural increase of the pledged goods it must follow that the pledgee would not only have the right to retain the said accretions but also have the right to sell the same along with original.

Headnote:(i) Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992—Section 3—Notified person—Attachment of Properties of—Bank Stanchart, allegedly suffered loss to a tune of Rs. 1258 in dealing with Dalal a notified person—Dalal accepting loss alleged and handing over shares in question to Stanchart —Custodian’s notice to Stanchart that shares in custody of Stanchart belonged to Dalal and stood attached —Stanchart’s suit claiming ownership as a pledgee over shares—Claim on basis of letter of Dalal wherein he admitted his liability and handed over shares in question as security—Dalal’s plea that shares were taken away by Stanchart forcibly under coercion—Special Court s finding that letter written by Dalal voluntary and same created pledge of shares in favour of Stanchart—Finding that loss worth 280.00 crores alone proved and rest stood unproved— Special Court holding that Stanchart cannot have right over bonus shares, dividend and interest on original shares and same being accretions must be handed over to custodian—Units ‘C’ were also directed to be handed over to custodian—Cost of Rs. 30 lakhs awarded in favour of Stanchart—Appeal by Stanchart against finding quantum of loss suffered and as regards bonus shares and units ‘C’—Dalal’s appeal against acceptance of loss and awarding of costs—Held, findings of Special Court correct except as regards Bonus shares—Bonus shares, dividend interest were accretions of pledged stock and must be regarded as forming part of pledged property—Accretions to pledged property could not be ordered to be handed over to custodian unless redemption takes place—Stanchart—entitled to sell original shares, rights shares and bonus in reduction of Dalal’s liability—No interference warranted with award of costs—Special Court s stricture against officials of Stanchart justified.

       Held : The contention of Dalal that the said shares were taken away from him forcibly is not correct. In the issues which were framed the onus of proof that the letter dated 11th May, 1992 had been executed under threat of physical terror and criminal prosecution was on Dalal. Hiten Dalal however chose not to enter the witness box in support of this plea. Not only did he not lead any evidence in order to prove coercion, the appellant bank on the other hand examined witnesses who clearly proved that Dalal had not only signed the letter dated 11th May, 1992 but he also signed other documents to which we will presently refer. As Dalal had failed to step into the witness box or lead any evidence on his behalf, the Special Court rightly drew an adverse inference against him. Even though the letter was prepared by the employees of the appellant Bank had been voluntarily and willingly signed by Hiten Dalal and the shares, securities etc. had been delivered by Dalal to the Appellant Bank. (Paras 21 & 22)

       The Special Court, on the basis of the evidence before it, came to the conclusion that except for sum of Rs. 280.00 crores, the balance claim of the appellants stood "dis-proved". As we have already noticed, the suit was filed by the appellant bank because it had in its possession shares and securities which had been lodged by Dalal as a notified party with the appellant bank between 11th and 15th May, 1992. The appellants had been asked by the Custodian to establish its right to retain the said shares and securities and this is the reason why the suit was filed. Even though in the plaint, it was said, and that is noted in Ex. `G’ itself that the appellant bank had suffered a loss of Rs. 1253 crores for the purpose of establishing its right to retain and sell shares and securities worth Rs. 145 crores, it was not necessary for the appellant bank to have proved the extent of total loss which it had suffered. It was enough for the Bank to prove that it had paid money in excess of Rs. 145 crores and had not received shares or Bankers receipt in respect thereof. This would give the Bank right to retain the said shares as having been pledged to it. (Para 37)

       Undoubtedly the Special Court had required the appellant bank to prove by independent evidence as to what was the extent of loss suffered by it. One of the issues between the appellant bank and the custodian, being Issue No. 2, was as to what was the extent of loss suffered by the Bank. The Special Court answered the issue by holding that the appellant bank had been able to prove that it had suffered a loss to the extent of Rs. 280.80 crores only. Having come to this conclusion it would have been more appropriate, in our opinion, for the Special Court to have observed that the appellant bank had failed to prove loss in excess of Rs. 280.80 crores rather than giving a finding that the loss in excess of Rs. 280.80 crores stands dis-proved. This loss which it had suffered was sufficient to enable it to retain and dispose off the shares to the extent of Rs. 145 crores which had been pledged with it. (Para 38)

       The decision of the Special Court holding that the appellants had been able to prove loss to the extent of Rs. 280.80 crores is affirmed. Bonus shares, dividend and interest were accretions to the pledged stock and have to be regarded as forming part of the pledged property which could not be ordered to be handed over unless redemption takes place. We hold that the letter dated 11th May, 1992, addressed by Hiten P. Dalal to the appellants created a pledge in their favour not only of the shares and debentures worth Rs. 105 crores, particulars of which were given in the said letter, but also on the bonus shares, dividend and interest accrued on the said pledged shares and debentures. In reduction of Dalal’s liability to the appellants, they are entitled to sell the original shares, rights shares and the bonus shares and also to retain the dividend and interest accrued on the original shares. Cantriple Units referred to in the letter dated 11th May, 1992 representing transaction value of Rs. 205 crores shall be returned to the custodian and his retention would be subject to the out come of the other proceedings including Miscellaneous Application No. 36 of 1993 and the appellants and other parties would be entitled to try and establish their rival claims to the said units. The observations made by the Special Court with regard to the conduct of the appellants and their employees do not call for any interference. The award of costs by the Special Court for Rs. 30 lacs against Hiten P. Dalal is affirmed. (Para 63)

       (ii) Indian Contract Act, 1872—Section 163—Bailment—Bailor’s right to accretions to pledged property—If pledge extends to accretions to pledged goods pledgee would not only have right to retain accretions but also have right to sell same along with original goods.

       What Section 163 of the Contract Act really means is that accretions in respect of the goods bailed cannot be a property of the bailee but must be returned when the goods themselves bailed are returned. A necessary corollary to this would be that as the pledge extends to such accretions then when the pledged goods are returned these accretions must also be given back. But if the pledge extends to such natural increase of the pledged goods it must follow that the pledgee would not only have the right to retain the said accretions but also have the right to sell the same along with original shares pledged for the purposes of realising amounts due to it and in respect of which the shares were pledged as a security. (Para 50)

       It is not possible to accept the contention of the custodian that as and when any accretion takes place the pawnee is under Section 163 liable to hand over the accretions to the pawnor. It is true that the words "upon redemption" as used in Section 63 and 64 of the Transfer of Property Act are not included in Section 163 of Contract Act but it is to be seen that if the accretion is to be regarded as forming part of the bailed property then such accretion must remain with the pawnee and be dealt with by him in the same manner as the pledged shares. In other words the accretions form an integral part of the attached shares as on the date of attachment, as held in T.B. Ruia’s case, and it follows that it would also be an integral part of the shares when they were pledged and would, therefore, constitute a part of the pledged security. The appellant bank would, therefore, be entitled to retain the same and deal with them as pledged stocks. The decision of the Special Court that the bonus shares, dividend and interest which had accrued on the pledged shares were not themselves the subject matter of the pledge and must, therefore, be handed over by the appellant bank to the custodian cannot be sustained. (Para 51)