Judgment :-

Chandramauli Kr. Prasad, J.

Defendant No. 1, the Hongkong & Shanghai Banking Corporation Ltd., a Company incorporated under the laws of Hong Kong, aggrieved by the judgment and decree dated 30th of June, 2004 passed by the Special Court (Trial of Offences relating to Transaction in Securities), Bombay in Suit No. 11 of 2002 decreeing the plaintiff’s suit for a sum of Rs. 18,59,71,808.22/- along with interest at the rate of 15% has preferred this appeal.

Plaintiff Canbank Financial Services Ltd., respondent no. 1 herein filed the suit seeking a decree directing defendant no. 1 to pay to the plaintiff a sum of Rs.33,13,42,781.62/-with further interest thereon at the rate of 24% per annum compounded quarterly from the date of the suit till realization. According to the plaintiff, it is a Company incorporated under the Companies Act and a subsidiary of Canara Bank. Plaintiff has averred that it is engaged in the business of providing financial and management consultancy services and trading in Government and public sector securities and bonds. In course of business the plaintiff buys and sells Government and public sector bonds and securities in accordance with the guidelines issued from time to time by the Reserve Bank of India. The plaintiff’s case is that on 24th of June, 1991, it purchased from defendant no. 1, through a broker M/s. Naresh K. Aggarwala, Coal India bonds of the face value of Rs. 18 crores. The broker issued a contract note of the same date. The plaintiff, in order to obtain from bank a pay order in favour of the seller, gave a cheque in favour of the said bank. Accordingly, the Canara Bank issued a pay order favouring defendant no. 1, for a sum of Rs. 18,59,71,808/- specifically mentioning that the pay order is on account of the plaintiff Canbank Financial Services Ltd. The plaintiff’s case further is that during the reconciliation of the securities account in or about September, 1994, the plaintiff found that the Coal India bonds purchased by it from defendant no. 1 on 24th of June, 1991 have not been received by them. Accordingly, plaintiff wrote a letter dated 1st of October, 1992 to defendant no. 1 for delivery of the bonds or to refund the amount paid by it. According to the plaintiff, defendant no. 1 acknowledged the receipt of the aforesaid amount by Canara Bank pay order but asserted that it was for settlement of Canbank Mutual Fund bank receipt No. 2214 issued by them in its favour on 8th of May, 1991. It is the assertion of the plaintiff that defendant no. 1 was not justified in adjusting the amount paid by the plaintiff for purchase of bonds towards transactions between defendant no. 1 and Canbank Mutual Fund. The plaintiff has alleged that the transaction between defendant no. 1 and Canbank Mutual Fund are totally unconnected with the transaction between plaintiff and defendant no. 1.

On the aforesaid pleadings, the plaintiff filed the suit seeking the relief aforesaid on its assertion that the action of defendant no. 1 by adjusting the amount paid by the plaintiff towards payment allegedly due to defendant no. 1 from Canbank Mutual Fund is totally unauthorized.

The defendant no. 1 contested the suit and its plea in the written statement is that on 8th of May, 1991, through a broker M/s. Naresh K. Aggarwala, defendant no. 1 purchased Coal India bonds of the face value of Rs.18 crores from Canbank Mutual Fund and paid to it an amount of Rs.18,05,64,657.53/-. Defendant no. 1 received from Canbank Mutual Fund bank receipt No. 2214 promising to deliver securities purchased by the plaintiff from the Canbank Mutual Fund. The plea of defendant no. 1 further is that on 24th of June, 1991 it sold the same securities to Canbank Mutual Fund and in consideration, received a cheque from Canara Bank for Rs. 18,59,71,808.22/-, which is the principal trustee of Canbank Mutual Fund. Further plea of defendant no. 1 is that along with the pay order defendant no. 1 did not receive any covering letter. Defen