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Andhra Pradesh High Court
N.HARIHARAN - Appellant
Versus
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA - RESPONDENT
Decided On: 08-31-04
The court emphasized the concept of holders in due course under the Negotiable Instrument Act and clarified the impact of a company's provisional liquidation on the rights of bondholders.
Headnote:
Negotiable Instrument Act - Purchase of Bonds - Section 45 MC l (d) of the Reserve Bank of India Act, Section 17 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, Section 8 of the Negotiable Instrument Act, Section 50 of the Negotiable Instrument Act
Fact of the Case:
M/s. C. R. B. Capital Markets Ltd. went into provisional liquidation. The applicants purchased bonds, but the interest and redemption proceeds were not paid due to the company's liquidation. They sought clarification that the liquidation order did not cover the bonds and requested payment with interest.
Finding of the Court:
The court found that the applicants became holders in due course of the bonds for valid consideration, and legal title passed in their favor. The court referred to a previous judgment for detailed legal position and clarified that the liquidation order would not prevent the applicants from transferring and realizing the proceeds of the bonds.
Issues: Validity of the applicants' claim for payment of bonds and interest in light of the company's provisional liquidation.
Ratio Decidendi: The court held that the applicants were holders in due course of the bonds and clarified that the liquidation order did not affect their rights to the bonds and proceeds.
Final Decision: The court allowed the application by clarifying that the liquidation order would not hinder the applicants from transferring and realizing the proceeds of the bonds, and directed IDBI and SIDBI to comply with these directions.
( 1 ) M/s. C. R. B. CAPITAL Markets Ltd. has gone into provisional liquidation. Order dated 22. 5. 1997 is passed by this Court to this effect in CP. 191/97 filed by Reserve Bank of india (RBI) seeking winding up of the respondent company under Section under section 45 MC l (d) of the Reserve Bank of india Act. The Official Liquidator attached to this Court has been appointed as the provisional Liquidator by the same order.
( 2 ) THIS application has been filed by two applicants. Applicant No. 1 is the Trustee of m/s. Larsen and Toubro Officers and Supervisory staff Provident Fund (hereinafter referred to as "the Fund for short ). This Trust was created as a Provident Fund under Section 17 of the Employees Provident Fund and miscellaneous Provisions Act, 1952 in which provident Fund contributions by the employees and employers are deposited. The fund maintains account with Standard chartered Bank (SCB ). Applicant No. 2 (SHN) is a company registered under the. Companies act and is wholly owned subsidiary of SCB, scb, inter alia, provides custodial services for clients and includes holding of securities and bonds in the vaults, collection of interest and redemption proceeds on due dates as mandated by its clients. The securities held by SCB on behalf of its clients are registered in the name of SHN to facilitate the administration and collection of Interest and redemption proceeds and to Identify SCB s own investments from Investments held by scb on behalf of its clients.
( 3 ) IT is the case of the applicants that on 27. 12. 96 the Fund purchased through GFC 7. 5% IDBI Bonds 1998 (25/3-9) of face value of Rs. 20 lacs issued by IDBI (hereinafter referred to as " IDBI Bonds" ). For this, consideration amounting to Rs. 19,24,153. 67 was paid to GFC vide cheque No. 083107 dated 27. 12. 96 drawn on SCB. Thereafter on 30. 12. 1996 the Fund purchased from M/ s. G. F. C. Securities and Finance Ltd. (GFC) being the Broker, 12. 5% SIDBI Bonds 2004 (20/6-12) of face value of Rs. 14 lacs issued by Small Industries Development Bank of india (hereinafter referred to as "sidbi bonds" ). The consideration amounting to rs. 13,22,864/- was paid to GFC vide cheque no. 083109 dated 30. 12. 96 drawn on SCB. The broker also issued delivery challan dated 3. 1. 1997 delivering the aforesaid SIDBI bonds and IDBI bonds. In order to substantiate its averments that the Fund is the bona fide purchaser of these bonds, the said delivery challan is annexed as Annexure-A; Bank statement dated 31. 12,1996 is filed showing encashment of the aforesaid two cheques; receipt dated 27. 12. 1996 and the Form-B dated 27. 12. 1996 issued by GFC in respect of IDBI Bonds are also filed as Annexure-B; receipt dated 30. 12. 1996 and Form B dated 30. 12. 1996 issued by GFC in regard to purchase of SIDBI bonds are filed as Annexure-C; true copies of SIDBI and IDBI bonds are filed as Annexure-D.
( 4 ) IT is averred that these bonds were in the nature of Promissory Notes and encashable which could be transferred by endorsement and delivery. It is claimed that on the payment of the amount in question for the two Bonds and delivery thereof to the Fund with the said endorsements, the Fund became owner of these bonds. The details of these bonds as per original certificates are contained in para-7 of the application.
( 5 ) AFTER the purchase of these bonds, vide letter dated 3. 1. 1997, the Fund requested scb, its bankers, to keep the SIDBI Bonds duly endorsed in the name of SHN in safe custody and to collect the interest on due dates from SIDBI and credit the same in the saving bank account of the Fund maintained with Its bankers. Similar, letter dated 10. 3. 1997 was written in respect of IDBI bonds. SCB also informed SIDBI vide letter dated 5,1. 1997 about the purchase of SIDBI bonds which letter is annexed with the application as Annexure-F.
( 6 ) WHEN the interest became due on these bonds, SCB on 16. 8. 1997 forwarded SIDBI bonds to SIDBI for payment of intere
