2006 Supreme(SC) 448

2006(4) Supreme 238
SUPREME COURT OF INDIA
(From Special Court at Bombay)
Y.K. Sabharwal, CJI., B.N. Srikrishna & P.P. Naolekar, JJ.
Standard Chartered Bank—Appellant
versus
Andhra Bank Financial Services Ltd. & Ors.—Respondents
Civil Appeal No. 2275 of 2002
With
Civil Appeal No. 2276 of 2002
Decided on 5-5-2006
Counsel for the Parties :
For the Appellant : Ram Jethmalani, Aspi Chinoy, Sr. Advocates, Tushad K. Cooper, Mahesh Agarwal, P.R. Mala, Manu Krishnan, Shilpa Singh, E.C. Agarwala, Rishi Agarwal, Advocates.
For the Respondents : Rohit Kapadia, Sr. Advocate, Shaunak Thacker, Pradeep Sancheti, Ms. Sunita Dutt, Nilesh Parekh, Rajiv Mehta, Kumar Desai, Ashwin Pandya, Nandini Gore, Ms. Manik Karanjawala, P.H. Parekh, Ms. Sweety Manchanda, Advocates.

IMPORTANT POINTS
1. The doctrine of res judicata is not merely a matter of procedure but a doctrine evolved by the courts in larger public interest.
2. While it may be true that the Special Court under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, has been given a certain amount of latitude in the matter of procedure, it surely cannot fly away from established legal principles while deciding the cases before it.
3. The provisions of Section 13 of the Special Courts (Trial of Offences Relating to Transactions in Securities) Act give an overriding effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

Headnote:(i) Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992—Sections 3(3), 5, 10, 13—Companies Act, 1956—Section 111—Securities scam—Dispute over the ownership of suit bonds between appellant-Standard Chartered Bank (SCB) and Canbank Mutual Fund—SCB filed a suit for declaration that it was entitled to the suit bonds and for an order directing Nuclear Power Corporation of India Ltd. (NPCL) to register the suit bonds in the name of SCB—CMF filed a petition u/s 111 of the Companies Act seeking registration of suit bonds in its name—Bonds of two series-9% tax free bonds and 17% taxable bonds were issued by NPCL in December 1991—These bonds were permitted by the Controller of Capital Issues to be sold to banks and financial institutions for private placement—Andhra Bank Financial Services Ltd. (ABFSL) made an offer to NPCL for placing Rs. 100 crores in bonds—NPCL issued a Letter of Allotment (LOA) confirming allotment of bonds—ABFSL sold the suit bonds to SCB—According to SCB, when securities scam broke out, it found original LOA missing in its possession—One HPD who was acting as a broker in a large number of securities was declared a ‘notified person’ u/s 3 of the Act—CMF alleged that it had purchased the suit bonds from ABFSL through HPD on payment of consideration—SCB alleged that HPD had wrongly and fraudulently diverted the suit bonds to CMF—Special Court held that CMF could claim no right, title or interest in the suit bonds as it had failed to prove consideration paid—Suit filed by SCB was dismissed on ground of non joinder of CMF which was a necessary party—Appeals—On remand, Special Court allowed CMF’s petition holding that CMF is actually the owner of suit bonds—Whether these findings are justified on facts and in law—(No).

       Held : The Special Court has taken the view that the suit filed by SCB is basically a title suit. Originally in the suit, a money decree in the alternative had been prayed for against ABFSL, but the monetary relief was subsequently given up. Following upon this, the Special Court held that even if CMF failed to prove the payment of consideration, SCB could not succeed in its suit as it was a title suit. In the same vein, the Special Court held that the Suit had to fail because it was a title suit and HPD was entitled to deal with the suit bonds in his own title. And since the title suit failed, SCB could not prevent NPCL from transferring the bonds in favour of CMF. Finally, the Special Court concluded on this issues, that non-payment of consideration by CMF, as submitted by SCB, could only be questioned by HPD and not by SCB. The Special Court also held that as the Suit was a title suit, SCB was required to prove its title and could not succeed on the basis of the faults in the evidence of the defendant-CMF.(Para 24)

       The substantive prayers are for a declaration that the plaintiffs “are fully entitled” to the suit bonds and certain reliefs which are founded upon this declaration. A suit for such a declaration would certainly be a title suit so far as the suit bonds are concerned.(Para 26)

       The Special Court has laid great emphasis on what it has called the ‘15% arrangement’ and concluded that because of this 15% arrangement HPD became owner of the suit bonds, which he rightfully transferred to CMF for consideration. The learned counsel for the appellant has severely criticised this conclusion as totally contrary to the evidence on record. Under the instructions of the Reserve Bank of India (hereinafter referred to as “RBT”), banks and financial institutions were required to maintain a certain liquidity ratio of debt to equity. They could have ready forward transaction in securities only with other banks and only in respect of government and other approved securities. The statutory liquidity ratio was maintained by sale and purchase of securities, issued by Government companies and public sector institutions.(Paras 33 & 34)

       An unhealthy practice had developed among all the banks and financial institutions affected by the securities scandal, under which some securities were repeatedly shown as bought and sold in order to advance finances to certain brokers. HPD was one of them. The so called ‘15% arrangement’ was an informal arrangement with HPD under which SCB bought securities from other counter-parties, as directed by HPD, and also sold them to such parties at such rates as designated by HPD. A desired sale price was arrived at so as to ensure that SCB obtained a return of 15% of the transaction. The evidence on record consisting of the Janakiraman Committee Report (the report of a High Powered Committee appointed by RBI to investigate into the irregularities in the funds management in commercial banks and financial institutions, in particular in relation to the dealings in Government securities) has examined this arrangement and reported upon it in Paragraph 8.1 to 8.7 of its Fourth Interim Report (March 1993), particularly with regard to the way in which the arrangement operated in SCB. The Joint Parliamentary Committee Report (hereinafter referred to as the “JPC Report”) (Exhibit-26) vide Paragraphs 8.49-8.51 has also explained this arrangement. There is also the evidence tendered on record in the form of replies to interrogatories in which SCB has explained the details of the scheme and how the 15% arrangement worked. The agreement between HPD and SCB was that, if SCB followed the instructions of HPD in the matter of which securities are to be bought or sold, from or to which parties, at what rates and when; SCB was assured of a net return of 15% of the outlay in the purchase of the securities concerned. If the return was less than 15% HPD would bear the difference; if the return happened to be higher than 15% HPD would be paid the difference. The evidence on record clearly bears out that this is how the 15% arrangement worked between SCB and HPD.(Para 35)

       Finally, it appears that there is not much to choose between the two contending banks, namely, SCB and CMF. Both the banks have been tarred by the same brush by the Janakiraman Committee Report about fudging their accounts. However, it appears to us that the issue of the ownership of the suit bonds could not have been decided on any basis other than what the legal evidence showed. The situation is somewhat like a game of musical chairs; the one who is sitting on the chair when the music stops, wins. Similarly, the situation before us. Once we eliminate the conjectural findings, we find that all the material evidence on record shows that SCB had purchased the suit bonds from NPCL by paying good money. The original LOA for purchase of the suit bonds along with transfer deed was handed over to SCB. As to how it went out of its possession, it appears to be the subject matter of the FIR filed by SCB. SCB alleges that, it was pilfered or misappropriated by some officer in conspiracy with HPD, but that is a matter which will be tried by an appropriate criminal court.(Para 97)

       Turning to the other side of the story, CMF claims acquisition of the suit bonds on 27.2.1992 by paying consideration for them. It is not shown as to who was the counter-party from whom the purchase was made, as CMF’s stand on its counter-party keeps changing from beginning to end. The documents produced on record do not bear out the stand of CMF. In spite of exercise of our imagination, we are not able to support the conclusion that CMF had paid consideration for acquisition of the suit bonds from HPD; or that HPD became the owner of the suit bonds merely because of the existence of the 15% arrangement, the details of which were thoroughly analysed by the Janakiraman Committee Report and the Joint Parliamentary Committee Report. That such an agreement was not against public policy was clearly held by the previous judgment of this Court in Civil Appeal No. 4456/95 [(2002) 11 SCC 597]. In these circumstances, we are not satisfied that the evidence on record proves that HPD became the owner of the suit bonds or that CMF legitimately acquired the suit bonds from HPD or any other person by paying bona fide purchase value for them. Consequently, we must hold that CMF acquired no right, whatsoever, to the suit bonds. The suit bonds always remained the property of SCB irrespective of how they found their way into the hands of CMF. In the result, we allow both the appeals and set aside the impugned judgments of the Special Court in Special Court Suit No. 11/96, and Special Court Misc. Petition No. 81/95 and hold that SCB as the owner of the suit bonds is entitled to be registered as such in the register of NPCL.(Paras 98 to 100)

       (ii) Civil Procedure Code, 1908—Section 11—Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992—Section 13—Res-judicata—Doctrine of res judicata is not merely a matter of procedure but a doctrine evolved by courts in larger public interest—Transactions in securities—15% arrangement—Nature of—Supreme Court upheld the judgment of the Special Court rejecting the argument that the 15% arrangement was contrary to public policy—Dispute was between the same parties—Whether Special Court was justified in holding that doctrine of res judicata would not apply as Section 13 of the Act had an overriding effect—(No)—There is nothing in the Act which is inconsistent with the doctrine of res judicata, per se.

       Held : We are afraid that the Special Court was wrong on all the counts. On the question of res judicata, the Special Court failed to notice that the doctrine of res judicata is not merely a matter of procedure but a doctrine evolved by the courts in larger public interest. What is enacted in Section 11 of the Civil Procedure Code (“CPC”) is not the fountain-head of the doctrine, but merely the statutory recognition of the doctrine, which rests on public policy. (Para 38)

       In the previous suit to which both SCB and Canara Bank were parties, the same issue with regard to `15% arrangement’ with HPD was urged by CMF as a non-suiting factor, but was negatived both by the Special Court and by this Court. Issue No.10 in the previous suit was the relevant issue dealing with 15% arrangement(Para 38)

       This was an issue raised by CMF which was defendant No.1 in that suit (Special Court Suit No. 13/94). The burden of proving this issue was on the defendant and the Special Court answered the issue in the negative and observed that the counsel for defendant No.1 had admitted that there was no evidence to support this issue. Consequently, the Special Court held that the issue was answered in the negative i.e against defendant No.1. Since the Special Court findings were finally upheld by this Court in the judgment reported in Canara Bank (supra) and a review petition thereagainst was also dismissed, we are of the view that it is not open for this Court to again raise the issue and take a view contrary to what had already been decided in the previous suit, particularly in view of the fact that there has been no new revelatory evidence on this issue.(Para 39)

       We are not in agreement with the view taken by the Special Court that Section 13 of the Act overrides the doctrine of res judicata. Section 13 of the Act provides: “The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any Court, tribunal or other authority”. This was certainly not intended to abrogate all the established principles of law, unless they were directly in conflict with the express provisions of the Act itself. There is nothing in the Act which is inconsistent with the doctrine of res judicata, per se, as seems to have been assumed by the Special Court. We are also unable to appreciate the thinking of the Special Court that there was something morally or economically reprehensible in the arrangement which was brought about between HPD and SCB as a result of which SCB was able to earn higher return.(Paras 40 & 41)

       (iii) Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992—Sections 3(3) and 13—Benami Transactions (Prohibition) Act, 1988—Section 4(2)—Transactions in Securities—Applicability of Benami Transactions Act—Whether provisions of Section 13 of the Special Courts Act give an overriding effect to the provisions of the Act—(Yes).

       Held : The force of the words “belonging to any person notified” used in sub-section (3) of Section 3 of the Act are wide enough to result in attachment of the property which belongs to the notified person irrespective of in whose name the property stands. The provisions of Section 13 of the Act give an overriding effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Even assuming that the argument of Mr. Jethmalani based on Section 4(2) of The Benami Transactions (Prohibition) Act, 1988 is a plausible one, we are of the view that the combined effect of Sections 3(3) and 13 of the Act would give an overriding effect of the provisions of the Act. It is rightly urged by Mr. Kapadia, learned counsel for CMF, that, if that were not so, then the whole purpose of the Act would be defeated since the objective of the Act was to reach out and attach the property in whichever hands it was, irrespective of in whose names the property stood, as long it was property belonging to a notified person. Thus, the contention based on Section 4(2) of the Benami Transactions (Prohibition) Act, 1988 has been rightly rejected by the Special Court.(Para 61)