2004 (7) TMI 351 - SC - Companies Law

Whether the suit is not maintainable and should be dismissed for non-joinder of Canbank Financial Services? Whether upon the original Bankers Receipt No. 47 being handed over duly discharged to the defendants the plaintiffs ceased to have any right in respect thereof or for the IRFC Bonds of the face value of Rs. 72.50 crores mentioned therein, the said discharge being in view of the plaintiffs accepting unconditionally from the defendants the said CANFINA Bankers Receipt No. 1401 for Rs. 50 crores and the defendants Bankers Receipt for IRFC Bonds of the face value of Rs. 22.50 crores as alleged in paragraph 8 of the written statement? Whether there was an established and accepted market practice to deliver and accept Bankers Receipts in effective discharge of the obligations to deliver physical securities as stated in para 6(c) and para 12 of the written statement? Whether the plaintiffs are estopped from denying that the defendants have discharged their obligations in respect of the IRFC Bonds of the face value of Rs. 50 crores or from contending that the defendants obligations in that behalf remains outstanding or subsisting as alleged in paragraphs 3 and 12 of the written statement? Whether the plaintiffs remedy is against CANFINA only and not against the defendants as alleged in paragraphs 12 and 13 of the written statement of the defendants? Whether the plaintiffs are entitled to any relief and if so, what relief? Held that - It is held that SCB voluntarily and unconditionally received and accepted non-transferable CANFINA s BR 1401 with an obvious inference that SCB desired the said CANFINA BR for its own purpose for the reasons best known to itself. The Special Court fell in error in applying section 41 of the Indian Contract Act to the facts of the present case. Thus Civil Appeal filed by Citibank is accepted. Judgment and decree passed by the Special Court is set aside and the suit is ordered to be dismissed with costs throughout. CANFINA becomes entitled to restitution of the total amount paid by it to the Citibank (principal and interest) along with interest @ 9% p.a. from the date of payment provided it is paid on or before 1-9-2004 and in default to pay the interest @ 12% p.a. from the date of payment till it is repaid by the Citibank.

Summary

Issues Involved:
1. Maintainability of the suit for non-joinder of Canbank Financial Services.
2. Whether the discharge of the original Bankers Receipt (BR) No. 47 was unconditional.
3. Established market practice regarding Bankers Receipts.
4. Estoppel against Standard Chartered Bank (SCB) from denying Citibank's discharge of obligations.
5. SCB's remedy being exclusively against CANFINA.
6. Entitlement to relief and the nature of such relief.

Issue-wise Detailed Analysis:

1. Maintainability of the Suit for Non-joinder of Canbank Financial Services:
The Special Court held that the suit was maintainable and not liable to be dismissed for non-joinder of CANFINA. The court decided that CANFINA was not a necessary party for the determination of the issues between SCB and Citibank.

2. Whether the Discharge of the Original Bankers Receipt (BR) No. 47 was Unconditional:
The court found that the discharge of the original BR No. 47 was indeed unconditional. SCB had returned the BR No. 47 to Citibank with an endorsement of due discharge without any qualifications. The Special Court's reliance on section 41 of the Indian Contract Act was deemed erroneous. Instead, section 63 was applicable, which allows a promisee to accept any satisfaction it deems fit. SCB's acceptance of CANFINA's BR 1401 and Citibank's fresh BR 47 was voluntary and unconditional, thus discharging Citibank of its obligations under the original BR.

3. Established Market Practice Regarding Bankers Receipts:
The Special Court held that there was no established and accepted market practice to deliver and accept Bankers Receipts in effective discharge of obligations to deliver physical securities. This issue was not proved by Citibank.

4. Estoppel Against SCB from Denying Citibank's Discharge of Obligations:
The court held that SCB was estopped from denying that Citibank had discharged its obligations. SCB's actions, including the unconditional discharge of the original BR and acceptance of CANFINA's BR, indicated that Citibank's obligations were fulfilled.

5. SCB's Remedy Being Exclusively Against CANFINA:
The Special Court found that SCB's remedy was not exclusively against CANFINA. However, the Supreme Court overturned this finding, establishing that SCB had no privity of contract with CANFINA and thus could not enforce any claim against it. SCB's acceptance of CANFINA's BR was voluntary and unconditional, discharging Citibank of its obligations.

6. Entitlement to Relief and the Nature of Such Relief:
The Special Court had initially awarded SCB a sum of Rs. 482,791,096, along with interest and costs. However, the Supreme Court reversed this decision, dismissing SCB's suit and ordering restitution to Citibank of the total amount paid to SCB, with interest. Consequently, the decree against CANFINA in Suit No. 1 of 1995 was also set aside, and CANFINA was entitled to restitution from Citibank.

Conclusion:
The Supreme Court set aside the Special Court's judgments, concluding that Citibank was discharged of its obligations under the original BR No. 47 upon SCB's voluntary and unconditional acceptance of CANFINA's BR 1401. Consequently, SCB's suit against Citibank was dismissed, and Citibank's contingent suit against CANFINA was also dismissed. The restitution was ordered for both Citibank and CANFINA, with specified interest rates and costs.