2003 Supreme(SC) 989

2003(7) Supreme 618
Supreme Court of India
(From Bombay High Court)
R.C. Lahoti & Ashok Bhan, JJ.
Citi Bank N.A. —Appellant
versus
Standard Chartered Bank & Ors. —Respondents
Civil Appeal No. 7941 of 1995
With
Civil Appeal No. 8340 of 1995
Decided on 8-10-2003
Counsel for the Parties :
For the Appearing Parties : T.R. Andhyarujina, Harish N. Salve, Rohit Kapadia, K.S. Cooper, Sr. Advocate (NP), Dr. A.M. Singhvi, R.F. Nari­man, Sr. Advocates, P.K. Samdani, Ms. Rashmi Virmani, Subrat Birla, Rajeev K. Virmani, Ms. Sunita Dutt, Pradeep Canchati, Shaunak Thacker, Nilesh Parikh, Shailendra Bhardwaj, Rakesh K. Sharma, T.K. Cooper, Mahesh Agrawala, E.C. Agrawala, Rishi Agrawala, Manu Krishnan and Ms. B. Vijayalakshmi Menon, Advocates.­

Important point
When the creditor takes an instrument by way of absolute satisfaction of the debt then the creditor cannot fall back on the original trans­action and is restricted to the terms of that instrument only.

Headnote:(i) Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992—Evidence Act, 1872—Section 114(i) and (g)—Contract Act, 1872—Sections 41, 62 and 63—Suit filed by Stand­ard Chartered Bank against Citi Bank—Transactions between Citi Bank, Standard Chartered Bank and Canbank Mutual Fund—Citi Bank agreed to sell to Standard Chartered Bank (SCB) 11.5 of GOI 2009 Bonds of face value of Rs. 42 crores and Rs. 8 crores respectively against receipt of purchase price purchased by SCB to Citi Bank—Since bonds were not ready, Citi Bank issued two Bankers Receipts (BRs) for the said Bonds—Stipulation in the BRs was to deliver 11.5 GOI 2009 Bonds in exchange of BRs duly discharged—SCB in exchange of BRs asked for received Subsidiary General Ledger (SGLs) of Canbank Mutual Fund (CMF)—Whether Citi Bank was discharged of its obligation under the BRs to deliver 11.5 GOI 2009 Bonds—(Yes)—Discharged BRs being in possession of Citi Bank—Presumption in law that BRs stood duly discharged.

       Held : As per stipulation in the BRs the Citi Bank had agreed to deliver 11.5 Government of India 2009 Bonds when ready “in exchange for this receipt duly discharged and in the meantime the same will be held on account of Standard Chartered Bombay.” On the same day, i.e., on 19th September, 1991 SCB wrote a letter returning the two BRs with a re­quest “to give us SGLs of Canbank Mutual Fund in exchange of the same”. Stipulation in the BRs was to deliver 11.5 GOI 2009 Bonds in exchange of BRs duly discharged; SCB in exchange of the BRs asked for and received SGLs of CMF. Case of Citi Bank is that BRs are duly discharged with the result that Citi Bank was relieved of its obliga­tion to deliver the Bonds under the BRs. That the SCB substituted the satisfaction referred to in the BRs (11.5 GOI 2009 Bonds) by asking for and taking the SGL of CMF. As against this the case of SCB is that BRs were never discharged. They were returned to the Citi Bank in exchange of SGL of CMF. The Citi Bank was not discharged of its obli­gation under the BRs to deliver the 11.5 GOI 2009 Bonds. The first question which needs to be determined is whether the BRs were duly discharged by the SCB. The fact that the two BRs were duly discharged was accepted by the SCB before the Special Judge. (Para 31)

       This finding has not been challenged. Further the return of two BRs with the stamp of the SCB on its reverse duly signed by the offi­cer of the SCB also amounts to discharge of the BRs. This was the mode of discharge of BRs. The discharged BRs being in possession of the Citi Bank would raise a presumption in law under Section 114 illustra­tion (i) of the Evidence Act, 1872 that the BRs stood duly discharged. Section 114 provides that the Court may presume the existence of any fact which it thinks likely to have happened regard being had to the common course of natural events human conduct and public and private business, in their relation to the facts of the particular case. Illustration (i) provides that Court may presume ‘that when a document creating an obligation is in the hands of the obligor, the obligation has been discharged’. The two BRs were in the custody of the Citi Bank. The possession of two BRs with the Citi Bank would raise a rebuttable presumption of discharge of the two BRs. Onus to rebut the presumption was upon the SCB. SCB has failed to rebut the presumption by leading any evidence that the obligation under the two BRs did not stand discharged. Finding recorded by the Special Court that there was nothing on the record to show that there was an absolute discharge granted by the Citi Bank to the SCB cannot be accepted because the two BRs were returned with the stamp of SCB duly signed by an officer of the SCB authenticating that it had been discharged. (Para 32)

       Production of two BRs by the Citi Bank raised a rebuttable presumption that Citi Bank had discharged its obligation under the two BRs which the SCB failed to dislodge by pleading/leading any evidence to show the circumstances under which the two BRs were returned. In the absence of any explanation by the SCB either in its plaint in Suit No. 22 of 1994 or the written statement filed by it in Suit No. 20 of 1994 whatsoever as to why it had asked for and took dishonoured SGL of CMF in exchange of two BRs raises a ­presumption under Section 114, illustration (i) that Citi Bank was discharged of its ­obligation under the BRs i.e. to deliver the Bonds. (Para 34)

       The BRs are dated 18th and 19th September, 1991, respectively, and on 19th September, 1991 the SCB wrote a letter returning the two BRs and asking of SGLs of Canbank Mutual Fund from the Citi Bank. Proximi­ty of these two dates, clearly indicates that the intention of the SCB was to buy the SGLs of Canbank Mutual Fund otherwise they would not have written the letter on 19th September, 1991 itself. Proximity of these two dates and the manner in which whole transaction was complet­ed indicates that it was done with a purpose or a design. It has not been explained as to how did SCB know that the Citi Bank had in its possession the SGL of CMF. SCB must have known, being a big banking business company, that the SGL issued by the CMF in favour of the Citi Bank was non-transferable. It could not provide any security to them. It had also been dishonoured. Still SCB asked for and accepted the dishonoured SGL of CMF. If the SGL given to them by the Citi Bank was ‘useless’ and ‘worthless’ then why did SCB gladly accept the same without any protest. If it was their case that the SGL of CMF given to them was ‘useless’ or ‘worthless’ it should have refused to accept it; far from doing so, the SCB not only accepted it but also acted upon it. It received interest from the third party. It has not been ex­plained as to why third party paid interest of the SCB. Basically, it was for the SCB to explain and answer all these questions which it has failed to do. SCB in its letter dated 8th October, 1991 wrote to CMF that SCB had bought from Citi Bank 11.5 GOI 2009 Bonds in the sum of Rs. 50 crores, for which, the Citi Bank gave its two BRs. Significantly, it was stated in the letter - “We understand that the same stock has been sold by you to Citi Bank. Therefore, we returned their BRs in exchange of your SGL for Rs. 44,58,05,000. We now request you to issue a fresh SGL in our favour for the same amount to enable us to lodge it urgent­ly.” This clearly indicates that SCB has taken the SGL of Canbank with the clear understanding that it wanted to exchange the BRs of Citi Bank with SGLs of Canbank. The argument now raised that SCB only wanted 11.5 GOI 2009 Bonds is belied by this letter. It is specifi­cally stated in this letter that it had known that Canbank had given its SGL in favour of Citi Bank which the SCB wanted to secure. In order to secure it, it had returned the BRs in exchange of SGL of Canbank in the sum of Rs. 44,58,05,000. It asked the CMF to issue fresh SGL in their favour of the same amount to enable it to lodge it urgently. This letter clearly indicates that the SCB wanted the SGL of CMF and it had exchanged it with the two BRs knowingly, consciously and voluntarily. The submission now made that SCB at all point of time was insisting on the delivery of 11.5 GOI 2009 Bonds cannot be ac­cepted. Though this letter has not been formally proved as the same has been denied by the CMF but since this was pleaded by the plain­tiff-SCB and the document was attached with the plaint, SCB cannot disown this document. It is bound by its own case set up in the Court. (Paras 40 and 41)

       In our opinion, the Special Court fell in error in applying Section 41 of the Indian Contract Act to the facts of the case. Sec­tion 41 of the Indian Contract Act only provides that the promisee cannot have double satisfaction of its claim i.e. from the promisor as well as third party. It does not give a cause of action to the promi­see, but, to the promisor, to contend that the promisee who has ac­cepted satisfaction from the third party cannot insist of the satis­faction of its claim from the promisor as well. No case under Section 41 of the Contract Act has been pleaded by the Citi Bank. It no where pleaded that CMF had delivered the bonds to SCB and, therefore, SCB cannot enforce its demand for delivery of bonds against the Citi Bank. (Para 51)

       It is well settled that where an instrument, a cheque or negotia­ble instrument, is given by the debtor and accepted by the creditor, the question whether the instrument was taken as an absolute payment or a conditional payment is one of the fact depending on the intention of the parties. When the creditor takes an instrument by way of abso­lute satisfaction of the debt then the creditor cannot fall back on the original transaction and is restricted to the terms of that in­strument only. In the present case the SCB asked for and accepted an SGL of Canbank payable to the Citi Bank in absolute satisfaction of the Citi Bank’s original obligation to give to SCB bonds of the face value of Rs. 44.58 crores. SCB asked for the SGL of Canbank which was in possession of the Citi Bank and accepted the same voluntarily and unconditionally indicating to the fact that SGL was taken as satisfac­tion deemed fit within the meaning of Section 63 of the Contact Act. There was no intention of the parties that taking of the SGL was conditional, i.e., that if SCB did not get the bonds from CMF, the SCB would hold Citi Bank liable for the bonds. Under the circumstances, the authorities cited by the SCB of conditional acceptance of the pronote are not applicable. (Para 58)

       (ii) Contract Act, 1872—Sections 41, 62 and 63—Novation, rescission and alteration of contract—It can only with agreement of both the parties of a contract—Both the parties have to agree to substitute the original contract with a new contract or rescind or ­alter—It cannot be done unilaterally. (Para 47)