2020 (6) TMI 272 - HC - Indian Laws

Custodian appointed under the Special Court (Trial of Offences Relating to Transactions in Securities) Act 1992 - diversion of large amounts from banks and financial institutions - Whether respondent no.1 proves that the claim in this petition is barred by law of limitation? - HELD THAT - No submissions have been made on behalf of respondent no.1 on this aspect. Although Mr.Mehta did support the Respondent no.1 s plea of the claim being barred, the issues have not been recast but considering the defence in Respondent no.4 s written statement, although the claim against Respondent no.4 may appear to be barred, the issue as framed will have to be answered in the negative. Save and except for the 4th Respondents contention in the written statement no submissions with reference to facts have been made on this aspect on behalf of Respondent no.1 or Respondent no.4. The issue has not been seriously pursued by Respondent no.4 probably in view of the lack of evidence on behalf of respondent no.1 - Issue answered in negative. Whether the petitioner and/or respondents nos.2 and 3 prove that respondent nos.2 and 3 had advanced to respondent no.1 a loan of ₹ 3, 44, 12, 538/- as alleged in paragraph 9 of the affidavit dated 19.1.1996 on behalf of respondent no.2? - Whether the petitioner and/or respondents nos.2 and 3 prove that respondent nos.2 and 3 advanced the said amount to respondent no.1 against pledge of shares as alleged in paragraph 7 of the affidavit of respondent no.2 dated 2.6.2000? - HELD THAT - The requirement of proving books of account is well recognized. The burden of proof lies on the party who would fail if no evidence was led by either side. It is also a cardinal rule of evidence and as embodied in Section 34 of the Evidence Act that entries in books of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability. In the case at hand merely producing the copy of the Cash Book will not suffice. Respondent no.2 was required to prove by leading evidence of the purported loan transaction - issues answered in negative. Whether respondent no.1 proves that respondent no.1 was doing business of discounting cheques with respondent nos.2 and/or 3 as alleged in paragraph 5(o) of the affidavit of respondents nos.1 dated 3.3.1999? - Whether respondent no.1 proves that respondent no.4 was the agent of respondent nos.2 and/or 3 as alleged in the affidavit-in-reply of respondent no.1 dated 3.3.1999? - HELD THAT - The only material admission is the statement of cheques received from respondent no.2 and these are set out in Exhibit 1. The fact that these cheques were received cannot be disputed but the case of the respondent no.2 that these monies were advanced to respondent no.1 by way of a loan is seriously disputed. This loan had not been repaid. On the other hand the case of the 1 st respondent and the witness Rajen Vakil is that all these amounts were withdrawn in cash and paid over to respondent no.3 T.B Ruia through his constituent Suresh Jajoo. None of these statements in the affidavit otherwise assists the respondent no.2 in proving its case that the amounts were advanced as of loan and was repayable by M/s. T.H Vakil to DMPL. Indeed no advantage can be gained by the Custodian from this affidavit or the admissions therein - the Custodian was clearly handicapped for want of evidence from respondent nos.2 3. Vakil not having offered himself for cross examination cannot seek benefits of his deposition and to that extent his evidence must be ignored - the issues wherein the burden of proof is cast upon the 1st respondent must be answered in the negative since in my view respondent no.1 has failed to discharge this burden - issue answered in the negative. Whether respondent no.1 proves that respondent no.4 issued a writing acknowledging receipt of the cash amounts paid by respondent no.1 as alleged in paragraph 5(i) of the affidavit of respondent no.1 dated 3.3.1999? - HELD THAT - There is absolutely no evidence on this aspect. The 1st respondent not having proved the document, it is not possible to accept this plea or come to any conclusion. The 1st respondent has not presented himself for cross examination. A bald statement to the effect that respondent no.4 had issued an acknowledgement would have to be tested by the 1st respondent being made available for cross examined by respondent no.4. This not having occasioned. It is not possible to hold in favour of the 1st respondent on this issue. Issue no.6 must and therefore is answered in the negative. Whether the petitioner proves that respondent no.1 illegally or fraudulently diverted moneys from respondent no.2 and paid them over to respondent no.2 and/or 3 and if so, whether such illegal transaction would not give a valid discharge to respondent of his liability to respondent no.2 as alleged in paragraph 6 of the petition? - HELD THAT - The 2nd respondent has not led any evidence. The affidavits of Dangarwala filed in these proceedings are of no avail. The only attempt in all these affidavits is to obfuscate and that will not help the petitioner to prove the allegations of illegal fraudulent diversion of monies from DMPL and its payment if any to respondent nos.2 or 3. The question of the 1st respondent therefore getting a valid discharge based on these averments cannot arise - issue answered in negative. Whether the petitioner is entitled to recover any amount from respondent no.1 and if so, what amount? - HELD THAT - There is no favour of the petitioner -Custodian on this issue - the petitioner is not entitled to recover any amount from the 1st respondent. Whether respondent no.1 received the cheques drawn by respondent no.2 in favour of respondent no.1 as set out in the annexure to Exhibit B to the petition aggregating in all to ₹ 3, 44, 12, 538/- for discounting or as an advance/loan repayable with interest at 24% p.a.? - HELD THAT - There should be no difficulty in answering this issue in affirmative. Since the respondent no.1 as in his Advocate s reply dated 3rd September, 1994 to the demand notice by the Custodian admitted receipt of these cheques - Furthermore, even in the affidavits filed in reply to the petition particularly affidavits dated 3rd March, 1999 of Rajen C. Vakil and in the affidavit of evidence dated 14th November, 2006 admitted the fact that cheques had been received and enchased in his current account. This admission also inures to the benefit of respondent no.2 to the limited extent that receipt of the cheques and encashment of the cheques is not in dispute. That being the case the deposition and the affidavit to the extent of such admission can be read in evidence in view of what I have observed above, however, the fact whether the amount was received for discounting or as an advance/ loan repayable with interest at 24% p.a. has not been established. It is only receipt of ₹ 3, 44, 12, 538/- that has been established. Whether respondent no.4 was an agent/representative of respondent no.2? - HELD THAT - Ruia himself being a party respondent to the present proceedings. This respondent as the agent of disclosed principal is therefore not personally liable for the debts of respondent no.3. (emphasis supplied). This limited admission helps in establishing the fact that respondent no.4 was indeed an agent to the extent admitted. However the consequences of such agency are something that we will have to consider - issue answered in affirmative. Whether respondent no.1 after encashing the said cheques paid or repaid the amounts of the respective cheques to respondent no.4 less discounting commission of 1%? - Whether respondent no.1 paid or repaid the said amounts to respondent no.4 as an agent/representative of respondent no.2? - HELD THAT - The 1st respondent has not proved payment or repayment of the amounts, so also apart from his bare statement that the discounting commission at 1% was deducted by him, there is nothing to show what had actually transpired. This is not to suggest that 1st respondent is still holding on to these funds. There is no evidence of that either. Respondent no.2 or 3 have not led evidence or assisted the Custodian in this respect - Issues answered in the negative. Whether respondent no.4 paid the said amounts alleged to have been received by him from respondent no.1 to respondent no.2 and/or to respondent no.3 as director of respondent no.2 or in any other capacity? - HELD THAT - Only if respondent no.1 establishes payment of cash to respondent no.4 to the extent withdrawn by him from the proceeds of the cheques said to have been issued to the respondent no.1 firm by respondent no.2 would the second part of issue no.13 arise inasmuch as, if such payment was established respondent no.4 would be require to establish the utilization of those funds but in the case at hand, there is no evidence of respondent no.4 having received these funds. Thus, in this petition, absent any such direct evidence it is not possible to hold that respondent no.4 paid over the amounts to respondent nos.2 and/or 3 in any capacity - the issue is answered in the negative for want of any evidence. Whether the respondent no.1 is entitled in law to contend that respondent no.1 had paid/repaid the respective amounts of the said cheques to respondent no.2 in cash in view of the prohibition contained in Sec.269T of the Income Tax Act against repayment in cash? - HELD THAT - There is no evidence of such amounts being paid in cash. There being no factual basis the issue is rendered academic and hence Issue no.14 in my view does not fall for consideration on facts - issue does not arise. Does respondent no.1 prove that respondent no.2 or respondent no.3 had appointed respondent no.4 as the authorized signatory or agent of respondent nos.2 and 3 and that respondent no.4 had been engaged to collect cash amounts upon the cheques in question being discounted? - Does respondent no.1 prove that the cheques in question were received from respondent no.4 on behalf of respondent nos.2 and 3 for the purpose of cheque discounting? - HELD THAT - The presumption of contract to the contrary may not arise in view of disclosure as aforesaid. There is no evidence on record to establish that respondent no.4 had been engaged to collect amounts in cash from the cheques being discounted - the discounting of cheques itself has not been established by the 1st respondent. It was incumbent upon 1st respondent to establish that he had indulged in cash discounting business at the instance of Suresh N. Shah Others and in that process had paid over the proceeds of the cheques admittedly received by the respondent no.1 from respondent no.2 to respondent no.4 in cash - This has not been established and hence issue is answered in the negative. Is it proved that the disputed transactions are fraudulent and a mode of diverting monies from respondent no.2 to respondent no.3? - HELD THAT - The entire scheme of operations does allude to a plan which has not been fleshed out in evidence and in fact there is not even an attempt to establish the case that the transactions were fraudulent. No doubt the transactions were questionable and do not appear to be regular arms-length transactions. The receipt of cheques by respondent no.1 is admitted but thereafter the trail has gone cold. Respondent no.1 has failed to establish his case against respondent nos.2, 3 or 4 in this petition. Respondent nos.2 and 3 also have failed to establish their case against respondent no.1. It is the case of respondent no.2 that the Custodian is concerned about and in view of the fact that the respondent no. 2 appears to have distanced itself from the transaction and the initial claim and the disclosure made by them, it appears that the attempt to obfuscate operates across the board - the disputed transactions have not been established - issue answered in negative. Does the petition disclose a cause of action against respondent no.4? - HELD THAT - This issue though inappropriately worded requires respondent no.1 to prove that the cheques were received from respondent no.4 on behalf of respondent no.2 3 for cheque discounting. This arises from the contention of the respondent no.1 that the cheques were handed over by respondent nos.2 to Suresh Jajoo respondent no.4 who would then hand over the cheques to respondent no.1 for being encashed through his bank accounts, for the cash to be withdrawn and paid over to respondent no.4. There is absolutely no evidence to support this plea and for want of evidence this issue is liable to be answered in the negative and is accordingly answered. Whether in view of the petitioners contentions in para 6 of the petition that the transactions were illegal, the petitioner/ respondent no.2 are entitled to see for the monies under such illegal transactions? - HELD THAT - The issue requires proof that the disputed transactions are fraudulent and a mode of diverting monies from the 2nd respondent to the 3rd respondent. Absent any evidence on behalf of 1st respondent and or on behalf of respondent nos.2 3 there is no occasion to come to the conclusion that the disputed transactions were fraudulent and for diverting monies. The entire scheme of operations does allude to a plan which has not been fleshed out in evidence and in fact there is not even an attempt to establish the case that the transactions were fraudulent. No doubt the transactions were questionable and do not appear to be regular arms-length transactions. The receipt of cheques by respondent no.1 is admitted but thereafter the trail has gone cold. Respondent no.1 has failed to establish his case against respondent nos.2, 3 or 4 in this petition. Respondent nos.2 and 3 also have failed to establish their case against respondent no.1. It is the case of respondent no.2 that the Custodian is concerned about and in view of the fact that the respondent no. 2 appears to have distanced itself from the transaction and the initial claim and the disclosure made by them, it appears that the attempt to obfuscate operates across the board - the disputed transactions have not been established - issue answered in negative. Whether the present petition is maintainable and is not barred by the principles of res-judicata or constructive res- judicata? - HELD THAT - The petition does disclose a cause of action against respondent no.4 since the funds are allegedly routed through respondent no.4 who was reportedly the last recipient of these funds. The fact that Jajoo himself has denied the transaction is of no consequence. Pleadings do point to the possible involvement of Suresh Jajoo and hence, the issue must be and is answered in the affirmative. Notwithstanding the respondent no.2 never having claimed a sum of ₹ 3, 44, 12, 538/- as being outstanding and receivable by respondent no.2 from respondent no.4 whether the petitioner can still claim the said amount from respondent no.4? - HELD THAT - The affidavit of evidence to the extent it concerns admission in favour of the respondents or any of them can only be considered since the evidence affidavit has been filed in Court and having been taken on record forms part of the evidentiary record. However, his positive case that the amounts had been paid over in cash to the other respondents have not been established - the petitioner and/or respondent no.2 are not entitled to sue on the basis of such a plea that the transactions were illegal specially since the transactions have not been clearly established. There is no evidence of what the transaction really was. The true nature of the transaction is not brought out, apparently in order to layer and shield purpose of routing of funds - issue answered in the negative. Whether the petitioner is entitled to any relief, and if so, what relief? - HELD THAT - A specific role has been attributed to respondent no.4, however, in the absence of evidence, it is not possible to indict the 4th respondent in the facts of the present case. In the facts of the case no effective relief can be granted to the Custodian, on that basis for want of evidence. The issue is now academic and is answered in the affirmative for that limited purpose only. In view of the above I am of the view that the petitioner is not entitled to any relief - issue answered in the negative.

Summary

Issues Involved:
1. Whether the claim is barred by the law of limitation.
2. Whether the petitioner and/or respondents nos.2 and 3 prove that the amount was advanced as a loan.
3. Whether the amount was advanced against the pledge of shares.
4. Whether the respondent no.1 was engaged in cheque discounting business with respondents nos.2 and/or 3.
5. Whether respondent no.4 was the agent of respondents nos.2 and/or 3.
6. Whether respondent no.4 issued a writing acknowledging receipt of cash amounts.
7. Whether the petitioner proves that respondent no.1 illegally or fraudulently diverted moneys.
8. Whether the petitioner is entitled to recover any amount from respondent no.1.
9. Whether respondent no.1 received the cheques for discounting or as an advance/loan repayable with interest.
10. Whether respondent no.4 was an agent/representative of respondent no.2.
11. Whether respondent no.1 paid or repaid the amounts to respondent no.4.
12. Whether respondent no.1 paid or repaid the amounts to respondent no.4 as an agent/representative of respondent no.2.
13. Whether respondent no.4 paid the amounts received from respondent no.1 to respondents nos.2 and/or 3.
14. Whether respondent no.1 is entitled to contend that it paid/repaid the respective amounts in cash in view of the prohibition contained in Sec.269T of the Income Tax Act.
15. Whether respondent no.2 or respondent no.3 had appointed respondent no.4 as the authorized signatory or agent.
16. Whether the cheques in question were received from respondent no.4 on behalf of respondents nos.2 and 3 for the purpose of cheque discounting.
17. Whether the disputed transactions are fraudulent and a mode of diverting monies.
18. Whether the petition discloses a cause of action against respondent no.4.
19. Whether the petitioner/respondent no.2 are entitled to sue for the monies under such illegal transactions.
20. Whether the present petition is maintainable and not barred by principles of res-judicata.
21. Whether the petitioner can claim the amount from respondent no.4.
22. Whether the petitioner is entitled to any relief.

Detailed Analysis:

Issue 1: Limitation
The issue of limitation was not seriously pursued by the respondents, and no substantial arguments were presented. Therefore, the issue was answered in the negative.

Issues 2 and 3: Loan and Pledge of Shares
The petitioner and respondents nos.2 and 3 failed to provide sufficient evidence to prove that the amount was advanced as a loan or against the pledge of shares. The affidavits filed by respondent no.2 were not substantiated by primary evidence. The entries in the cash book were not proven to be loans. Therefore, these issues were answered in the negative.

Issues 4 and 5: Cheque Discounting and Agency
Respondent no.1 did not provide evidence to prove that it was engaged in cheque discounting with respondents nos.2 and/or 3 or that respondent no.4 was their agent. The affidavit filed by respondent no.1 was not supported by cross-examination, and thus, these issues were answered in the negative.

Issue 6: Acknowledgment of Receipt
There was no evidence to support the claim that respondent no.4 issued a writing acknowledging receipt of cash amounts. Therefore, this issue was answered in the negative.

Issue 7: Illegal or Fraudulent Diversion
The petitioner failed to establish that respondent no.1 illegally or fraudulently diverted monies. The burden of proof was on respondent nos.2 and 3 to provide evidence, which they did not. Therefore, this issue was answered in the negative.

Issue 8: Recovery of Amount
In light of the negative findings on the previous issues, the petitioner is not entitled to recover any amount from respondent no.1. This issue was answered in the negative.

Issue 9: Receipt of Cheques
Respondent no.1 admitted to receiving and encashing the cheques but did not establish whether the amounts were for discounting or as a loan repayable with interest. Therefore, this issue was answered partly in the affirmative (receipt of cheques) and partly in the negative (purpose of receipt).

Issue 10: Agency of Respondent No.4
Respondent no.4 admitted to being a power of attorney holder for respondent no.2, establishing his role as an agent. Therefore, this issue was answered in the affirmative.

Issues 11 and 12: Payment/Re-Payment to Respondent No.4
Respondent no.1 failed to provide evidence that it paid or repaid the amounts to respondent no.4 after deducting the discounting commission. Therefore, these issues were answered in the negative.

Issue 13: Payment by Respondent No.4 to Respondents Nos.2 and/or 3
There was no evidence to prove that respondent no.4 paid the amounts received from respondent no.1 to respondents nos.2 and/or 3. Therefore, this issue was answered in the negative.

Issue 14: Repayment in Cash
There was no evidence of repayment in cash, making this issue academic. Therefore, this issue does not arise for consideration.

Issues 15 and 16: Authorized Signatory and Cheque Discounting
There was no evidence to establish that respondent no.4 was appointed as an authorized signatory or that the cheques were received for cheque discounting. Therefore, these issues were answered in the negative.

Issue 17: Fraudulent Transactions
The petitioner failed to provide evidence to prove that the transactions were fraudulent. Therefore, this issue was answered in the negative.

Issue 18: Cause of Action Against Respondent No.4
The petition discloses a cause of action against respondent no.4 due to his involvement as a power of attorney holder and agent for respondent no.2. Therefore, this issue was answered in the affirmative.

Issue 19: Illegal Transactions
The petitioner and respondent no.2 are not entitled to sue for the monies on the basis of the transactions being illegal, as the transactions were not clearly established. Therefore, this issue was answered in the negative.

Issue 20: Res Judicata
The petition is maintainable and not barred by principles of res judicata. This issue was answered partly in the affirmative (maintainable) and partly in the negative (not barred by res judicata).

Issue 21: Claim Against Respondent No.4
The petitioner can claim the amount from respondent no.4 in principle, but no effective relief can be granted due to lack of evidence. Therefore, this issue was answered in the affirmative for the limited purpose.

Issue 22: Entitlement to Relief
In light of the findings on the previous issues, the petitioner is not entitled to any relief. Therefore, this issue was answered in the negative.

Conclusion:
The petition was dismissed, and costs were to be the cost in the cause.