2001 (1) TMI 889

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..... d on TORT of conspiracy and fraud. Facts as pleaded by the petitioners 2. Canfina is a Company incorporated under the Companies Act, 1956. It is a subsidiary of Canara Bank. At the relevant time, it carried on and conducted Portfolio Management Scheme on behalf of investors/constituents. The 1st Respondent - Hiten P. Dalal ( HPD ) was, at the relevant time, a registered Stock Broker till he was notified on 8-6-1992 under Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. He was carrying on business as a Share Stock Broker and also as a dealer in shares, securities and stocks in his own right. Respondent No. 2 - Citibank is a Banking Company. Respondent No. 3 - Dhyan Investments and Trading Company Limited is a Company incorporated under the Companies Act, 1956. The respondent Nos. 4 and 5, at the relevant time, were working as Chief Dealer and Dealer respectively in Canfina. They formed part of Funds Management Group. The respondent No. 6 is the Custodian. The respondent Nos. 7 and 8 were subsequently added to the petition by way of amendment carried out on 28-7-1998. They were employed in Canfina in Funds Department in their capacity as Asstt. Vice .....

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..... ed two suit transactions of 13-5-1992 and 15-5-1992. The total consideration paid by Canfina to Dhyan Investments on 15-5-1992 in respect of purchase of the above two scrips was Rs. 62.50 crores. According to Canfina, pursuant to the CBI investigations, they have come to learn that HPD sold the two scrips to Dhyan Investments at the following rates : Candoubles of the f.v. of Rs. 7.50 crores were sold at the rate of Rs. 29.75 for total consideration of Rs. 22,31,25,000 and Canpremium of f.v. Rs. 20 crores at Rs. 19.75 for consideration of Rs. 39,50,00,000. In other words, HPD sold to Dhyan Investments the two scrips for total amount of Rs. 61,81,25,000. On 15-5-1992, Dhyan Investments resold to Canfina the two scrips at the market price of Rs. 20 and Rs. 30 unit respectively for Rs. 62.50 crores. Hence, within a span of two days, vide the above circuitous flow of securities, the scrips sold by Canfina were repurchased by Canfina at a loss of Rs. 22,12,50,000. That, further on 15-5-1992 upon receipt of Rs. 62.50 crores from Canfina, Dhyan Investments made payment of Rs. 61.8125 crores to HPD. Thereafter, HPD in turn, on 15-5-1992 paid Rs. 21 crores to Dhyan Investments out of Rs. 61 .....

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..... nt No. 1 in the reply 4. According to HPD, he was not aware of the sale of the two scrips by Canfina to Citibank on 13-5-1992. That, the said deal was directly between Canfina and Citibank. That, he has not acted as a broker in the said transaction. That, he has not dealt in any capacity in the said transaction. That, his name does not figure in the deal pad in respect of the transaction of 13-5-1992. That, his name did not reflect in the cost memo of Canfina of 13-5-1992. That, the sale of the two scrips on 13-5-1992 by Canfina to Citibank was a direct transaction between the two institutions. HPD has, however, admitted that there was a deal between him and Citibank under which he purchased the two scrips from Citibank. HPD has further pointed out in his reply that the purchase deal with Citibank took place at the instance of Citibank which owed to him Rs. 21 crores in respect of some other outstanding transactions in shares and in order to adjust that liability, he had entered into the deal with Citibank in respect of the above two scrips. According to HPD, the transaction between him and Citibank took place to discharge Citibank s liability to HPD of Rs. 21 crores. That, he was .....

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..... urther alleged that HPD was to pay to Citibank Rs. 40.65 crores in respect of the two scrips sold by them against which two cheques were forwarded by HPD. One cheque dated 18-5-1992 for Rs. 14.50 crores was forwarded along with the letter of Andhra Bank by HPD to Citibank. This was on 18-5-1992. On 20-5-1992, however, a personal cheque of HPD dated 20-5-1992 for Rs. 26.15 crores drawn on Andhra Bank was forwarded by HPD to Citibank. Accordingly, two cheques of the total amount of Rs. 40.65 crores was paid to Citibank. According to Citibank, the cheque for Rs. 26.15 crores was forwarded by HPD to Citibank vide his letter dated 20-5-1992. That, on 18-5-1992 the cheque for Rs. 14.50 crores came to be realised. However, the cheque for Rs. 26.15 crores came to be dishonoured for want of funds. On 21-5-1992, according to Citibank, HPD superseded his earlier instruction and authorised Citibank to deliver 75 lakhs Candouble units to Canfina on his behalf. According to Citibank, in the light of the above instructions given by HPD, they delivered 75 lakhs Candoubles to Canfina on 11-7-1992. Citibank has further pointed out that on 10-7-1992, it sold to Dhyan Investments 2 crores Canpremium u .....

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..... nvestments that Canfina had received Candoubles on 11-7-1992. That, in view of the said letter, Dhyan Investments came to know for the first time that Canpremiums were not delivered. That it then realised that in view of the notification dated 8-6-1992, HPD would not be able to deliver Canpremiums and with a view to fulfil its contractual obligations, Dhyan Investments purchased Canpremiums from the market on 10-7-1992 of Rs. 20 crores. That, Dhyan Investments delivered the said Canpremiums to Canfina on 15-7-1992. That on 15-7-1992, Canfina confirmed having received Canpremiums. Therefore, according to Dhyan Investments, their obligations stood discharged. That, similarly, full payment was also made by respondent No. 3 to HPD of Rs. 61.8125 crores on 15-5-1992 and hence its obligation to HPD also stood discharged. According to Dhyan Investments, the fair price/market price of Canpremium unit was Rs. 20 and that market price of Candoubles was Rs. 30 per unit. Hence, the sale of the two scrips at Rs. 20 and Rs. 30 per unit was at market price. That, Canfina had entered into a purchase deal with respondent No. 3 on 15-5-1992 with full and free consent and with the knowledge of all re .....

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..... ing Director J.V. Shetty. He has further stated that the transactions were put through at the specific direction of J.V. Shetty - Chairman and Managing Director of Canfina at the relevant time and also under specific direction of M.V. Kamath - Deputy General Manager of Canara Bank and P.A. to J.V. Shetty. That, the said directions were given in pursuance of an arrangement between Canfina and Citibank. That, in January/February, 1992, Canfina had delivered to Citibank 9 per cent Tax Free Bonds of the f.v. of Rs. 450 crores with the understanding that Canfina would take back the bonds on expiry of 90 days. In consideration, Citibank was to receive Tax Free half-yearly interest on the bonds. Hence, the transactions became reversible in May, 1992. However, in May 1992, Canfina had no funds nor were they in a position to raise such large amounts as the scam had broken out and, therefore, J.V. Shetty, M.V. Kamath and others in the management decided to convert the said transactions into outrights and compensate Citibank for the difference in the rates by payment of Rs. 22.50 crores to Citibank. That, in order to carry out the decision of J.V. Shetty and his associates, the above suit tra .....

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..... 1992 and worked till 2-4-1993 therein, he was made to sit with clerks during the relevant period. That, he was not given any responsible work. That M.K. Ashok Kumar and S. Mohan were the dealers in the Funds Department and they were the only authorised officers to strike the deals. That, K.B. Shenoy was the Head of the back-up unit of the Funds Department. That, on 15-5-1992 both the above dealers were in Bombay. That, S. Mohan had contacted the Bangalore office on phone which was received by him. That, S. Mohan instructed him to record the purchase transaction of 15-5-1992 in respect of Candoubles and Canpremium from Dhyan Investments. That, according to the instructions, respondent No. 8 entered the particulars in the deal pad on 15-5-1992. That, thereafter, the cheque for purchase consideration was prepared by the Secretary and by one Ashokkumar Kini - Executive Vice President who signed the same after due verification. That, an IBA number and the amounts were entered on the basis of the advice issued by Canara Bank Cunningham Road Branch, Bangalore. That, the IBA Register and the amounts were entered by him. That, respondent No. 8 has merely recorded the message received from S .....

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..... as categorically denied that every transaction after 7-5-1992 was put through with prior specific approval of J.V. Shetty. That, J.V. Shetty was not the managing director of Canfina. Therefore, he could not have given prior specific approval for each and every transaction after 7-5-1992. That, even otherwise, it was impossible for a higher ranking officer to direct and supervise each and every transactions after 7-5-1992. It is pointed out that there was no arrangement to compensate Citibank as alleged. It is pointed out that the suit transaction of 13-5-1992 was an independent transaction. It is pointed out that if there were any transaction for reversal, Canfina would have seen to it that requisite funds be made available. A similar Rejoinder was also filed to the affidavit in reply filed by S. Mohan. Summary of basic facts on pleadings 12. The basic case of Canfina is of conspiracy. According to Canfina, there is no dispute about existence of four contracts. That, all four contracts were interconnected. That, rates at which the contracts were entered into are not disputed. That, sequence of the contracts and the respective rates at which they were stuck show that the entire devi .....

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..... s. 4 and 5 or under their instructions] in respect of the following securities, at the following rates; In the Affirmative except braketed portion i.e., through respon- dent Nos. 4 5 or under their instructions, which is not proved. ( a ). Canpremium units of the face value of Rs. 20 crores for a consideration of Rs. 40 crores at the rate of Rs. 200 per unit (face value of Rs. 100); and ( b ) Candouble units of the face value of Rs. 7.50 crores for a consideration of Rs. 22.50 crores at the rate of Rs. 30 per unit (face value of Rs. 10) as alleged in para 6 of the petition? 5. Whether respondent No. 1 was involved as a broker in the transactions referred in Issue No. 4 above as alleged in para 7 of the petition? In the Affirmative 6. Whether respondent No. 1 sold the securities mentioned in Issue No. 4 above to respondent No. 3 at the following rates : In the Affirmative ( a ). Candouble face value of Rs. 7.50 crores at the rate of Rs. 29.75 aggregating to Rs. 22,31,25,000? ( b ). Canpremium face value of Rs. 20 crores at the rate of Rs. 19.75 aggregating to Rs. 39.50 crores totalling to Rs. 61,81,25,000 as alleged in para 9( a ) of the petition? 7. Whether there was a circuitous f .....

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..... 8( iii ) to ( v ) of the 2nd Respondent s Affidavit-in-Reply dated 1-11-1995 and whether the Bankers cheque for Rs. 14.50 crores came to be appropriated towards the sale price of Candouble units as alleged in para 8( vi ) of the 2nd Respondent s Affidavit in Reply dated 1-11-1995? Not attempted to be proved. 15. Whether the contract for sale of Canpre-mium of the face value of Rs. 20 crores stood cancelled/terminated as alleged in para 9 of the 2nd Respondent s Affidavit-in-Reply dated 1-11-1995? Not attempted to be proved. 16. Whether on 10-7-1992 respondent No. 2 sold to respondent No. 3 Canpremium Units of the face value of Rs. 20 crores, at par i.e., at the rate of Rs. 10 per unit, for a total consideration of Rs. 20 crores and that respondent No. 3 paid for the same by a Bankers cheque dated 10-7-1992 issued by Allahabad Bank, against delivery of the Said units to respondent No. 3 by respondent No. 2, as alleged in para 11 of the 2nd respondent s Affidavit-in-Reply dated 1-11-1995? Although delivery of scrips and payment by cheque stand proved, under which contract the delivery and payment were made has not been proved 17. Whether the 2nd respondent incurred a loss of Rs. 4 pe .....

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..... he respondent No. 2 on 15-5-1992 as alleged in paragraph 9( e ) of the petition? By order dated 25-8-2000, Issue No. 7 is deleted in view of the amendment dated 27-7-1998 to para 9( e ) of the Petition. 8. Whether the purchase of Canpremium securities by the Petitioners from the respondent No. 3 was at an astronomically high and unrealistic price and whether no prudent purchaser would have purchased Canpremium at such a price on or around 15-5-1992 as alleged in paragraph 10( g ) of the petition? In the Affirmative 9. Whether the agreements by the petitioners to sell and to purchase the aforesaid securities was arrived at by and/or with the consent and connivance of respondent Nos. 4 ~and 5 as alleged in paragraphs 5 and 6 of the petition ? In the Affirmative 10. Whether in the transactions by the peti-tioners of sale as well as purchase of the aforesaid securities, the respondent No. 1 was involved as a broker as alleged in paragraphs 5, 7 and 10( a ) of the petition? In the Affirmative 11. Whether there was any circuitous flow of securities as alleged in paragraph 9( c ) of the petition? In the Affirmative 12. If so, whether the respondent No. 3 was a party to the circuitous flow .....

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..... his colleagues on the board of directors had decided to compensate R2 in respect of the transaction in respect of 9 per cent tax-free bonds entered into in January/February, 1992 as alleged in Para 7 of the affidavit in reply of respondent No. 4? Issue abandoned by Respondent No. 4. Hence not proved. 4. Whether the powers of respondent No. 4 in respect of effecting transactions in securities were withdrawn by the petitioners on 7-5-1992 as alleged in Para 11 of the affidavit in reply of respondent No. 4? In the Negative 5. Whether the Chairman of the petitioners was in overall control and/or absolute charge of all the transactions in securities of the Petitioners as alleged in Para 11 of the affidavit in reply of respondent No. 4? In the Negative 6. Whether the agreement for Sale of Secu-rities mentioned in Para 4 of the Petition were arrived at by and/or with consent and connivance of respondent No. 4 as alleged in Para 5 of the Petition? In the Affirmative 7.Whether the petitioners prove that there was fraud and/or conspiracy and/or connivance as between the respondents 1 to 5 or between any one or more of them as alleged in paragraphs 10 and 12 of the Petition? In the Affirmati .....

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..... to the petitioners the sum of Rs. 38,01,13,561.64 as per Particulars of Claim Exhibit A or any other sum? In the Affirmative 9. Whether the transactions which are sub-ject-matter of the petition were put through at the specific direction of Shri J.V. Shetty and Shri M.V. Kamath in pursuance of an arrangement between them and the respondent No. 2 for settlement of transaction of January/February, 1992 as alleged in para 14 of the affidavit in reply of respondent No. 5? In the Negative 10. What reliefs? As per the Order. IV. Appreciation of evidence 14. On behalf of Canfina, D.G. Vernekar [PW-1] was examined. PW-1 was working in May 1992 with Canara Bank (Funds Investment Section, Mumbai). At that time, he used to execute security transactions of Canara Bank as well as Canfina. PW-1 has explained in his evidence the work of execution which he used to perform. PW-1 has deposed that he used to receive instructions regarding execution of security transactions of Canfina from the dealers of Canfina at Bangalore. PW-1 has deposed that he used to get instructions in May, 1992 from the dealers - M.K. Ashok Kumar and S. Mohan. That, the deals were entered into by the dealers at Bangalore. T .....

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..... ed that on 20-12-1991, Canfina purchased the two scrips from Citibank. That, Canfina received the cost memos of Citibank along with the above BRs - Exhibit-E and Exhibit-G. That, the transaction of 20-12-1991 was a BR purchase transaction. That, HPD was the broker in the said transaction. According to PW-1, on 15-5-1992 Canfina repurchased the above two scrips from Dhyan Investments for total consideration of Rs. 62.50 crores which they paid on the same date. According to PW-1, Dhyan Investments however, did not give Canfina physicals of the above two scrips. He has deposed that Candoubles were received by him on 11-7-1992 vide Exhibit-J (Colly.). That, they were delivered by Citibank to Canfina and not by Dhyan Investments [ see Exhibit-K (Colly.)]. That, the representative of Citibank had come along with a representative of Dhyan Investments and had delivered the Candoubles to Canfina [ see Exhibit-N]. That representative of Citibank was Ramesh Kumar. That PW-1 received Canpremium from Dhyan Investments on 15-7-1992 [Exhibit-K (Colly.)]. Again on that day, the representative of Dhayan Investments came along with the representative of Citibank when PW-1 gave acknowledgement to Dhy .....

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..... ed that he knew Ramesh Kumar as Ramesh Kumar was his colleague in Canara Bank and Ramesh Kumar had come to his office on 11-7-1992 when the above letter was collected from Canfina. PW-1 has further deposed that Ramesh Kumar came to his office also on 15-7-1992 to deliver Canpremium along with a representative of Dhyan Investments. PW-1 was extensively cross-examined. In his cross-examination PW-1 has deposed that he has been doing the work of execution for Canfina from 1989. He has further deposed in his cross-examination that Canfina had Funds and Investment Department at Bangalore whereas, the Funds Department of Canara Bank was in Bombay. He has further deposed that execution work for Bombay was carried out from his office at Verma Chambers in Bombay. That, his office was designated as Canara Bank, Funds Investment Section. That, there was no Funds Investment Section of Canfina in Bombay. That, it was only in Bangalore. That, after completion of the work of execution of a security deal, he would report to the dealers in Bangalore viz. M.K. Ashok Kumar and S. Mohan. That, PW-1 worked for Canara Bank. That, he had no designation in Canfina. That, he had the authority to sign docum .....

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..... BR Purchase Register followed by Security Ledger and, thereafter, the entry was made in the security ledger (physicals) only if the physicals were received. PW-1, in his cross-examination at page 69, has categorically stated that in case of sale transactions, physicals would be delivered only against receipt of cheques. PW-1 was, thereafter, examined on the various entries in the Transaction Register pertaining to 13-5-1992. PW-1 conceded that the entry in the Transaction Register dated 13-5-1992 [Exhibit-S] does not show the name of any broker. However, it is interesting to note that even the entry in the Transaction Register of 15-5-1992 - Exhibit-V (Colly.) also does not indicate the name of any broker though Dhyan Investments has admitted that HPD was the broker in the trans- actions of 15-5-1992. This entry reads Physicals to be received . Hence, absence of the name of HPD from transaction register is of no relevance. Moreover, the evidence of PW-1 shows that he received the cheque of Rs. 51.57 crores [Exhibit-H] from HPD on 13-5-1992. PW-1, in his evidence, has deposed that he has no personal knowledge about the suit transactions except regarding the execution part of the dea .....

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..... ith only the work of execution. That, he was aware that both the dealers were in Bombay in May, 1992. At page 138 of his cross-examination, PW-1 has admitted that J.V. Shetty was the Chairman of Canfina as also the Chairman of Canara Bank, having his office in Bombay. PW-1 has deposed that in case of purchase, Canfina would first receive delivery of physicals and, thereafter, against delivery, Canara Bank, Funds Invest- ment section would issue its cheque to the broker, institution or bank and, on the same day, funds would be remitted by Canfina through Canara Bank, Cunningham Road Branch, Bangalore, Funds Investments Section, Bombay by way of IBAs. That, IBAs were issued by Canara Bank, Bangalore favouring Canara Bank, Funds Investments Section, Bombay. Thereafter, Canfina, Bangalore, which had a current account with Canara Bank, Cunningham Road Branch, Bangalore, would issue current account cheque to Canara Bank, Cunningham Road Branch, Bangalore for issue of IBA from Canara Bank, Cunningham Road Branch, Bangalore to Canara Bank, Funds Investment Section, Bombay. That, in the case of purchase, Canfina would convey the total purchases of the day to the dealers of Canfina at Bangal .....

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..... pal [PW-2] and K.D. Prabhu. He further stated that N. Balasubramanian, the respondent No. 7 herein was in the back-up department in Bangalore. At page 205 of his cross-examination by the learned counsel for the respondent No. 2, a question was asked after inviting the attention to various entries in the Security Ledger (Movement) as to whether various entries in the Security Ledger (Movement) indicated reversals. PW-1 answered the question in the affirmative. He was, thereafter, asked as to whether the said reversals were also mentioned in Transaction Register, BR Sale Register, BR Purchase Register and Security Register, to which PW-1 answered in the affirmative. In continuation of this line of questioning, the next question which was asked to PW-1 was whether in cases where Canfina sold the securities and later purchased the same, would it amount to Canfina borrowing monies and repayment, to which PW-1 deposed that he cannot say. However, at page 206, PW-1 has deposed that purchase of securities could amount to lending or it could be the case of pure and simple outright purchase. Thereafter, PW-1 was cross-examined on the same point by asking whether it would be correct to say th .....

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..... W-1 has deposed that the transactions executed by him in Bombay were based on instructions received by him from dealers on telephone at Bangalore. That there was no formal record of the conversation between him and the dealer except the instructions received by him which was put by him on the Rough Sheets. At page 250 of his evidence, PW-1 has, once again, reiterated that he had no personal knowledge regarding the terms of the deals. That, whenever a dealer spoke to him from Bangalore, it was on the basis that the dealer had struck the deal. At page 250, PW-1 has deposed that both M.K. Ashok Kumar and S. Mohan were in Bombay on 13-5-1992. At page 251 of the notes of evidence, PW-1 has deposed that when the scam broke out, several BRs were outstanding. These BRs were required to be settled. That, M.K. Ashok Kumar and S. Mohan had come to Bombay for that purpose. That S. Mohan was in Bombay up to end of May, 1992. Thereafter, PW-1 was cross-examined on market quotes in the Bhav Copy - Exhibit-R3(4)(Colly.). In this matter, the Court is accepting the case of the respondent No. 3 that market price/fair value of the two scrips were Rs. 20 and Rs. 30 per unit. Hence, further discussion i .....

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..... o shield J.V. Shetty. That these Officers, if summoned, could have explained the terms of the deal. However, it is important to note that neither Narayan Rao nor Ashokkumar Kini were the dealers. In fact, after scam they were not summoned to Bombay. That only respondent No. 4 and respondent No. 5 were in Bombay as they were the dealers. As stated, the segregation of duties between persons responsible for entering into deals and persons having custody of investments show, the basis of the rates was known only to dealers. Lastly, the respondent No. 4 and the respondent No. 5 have abandoned Issue No. 3. On reading Exhibit-R3(6) and Exhibit-R3(7), PW-1 conceded that transaction of 15-5-1992 between the respondent No. 3 and the Petitioners is at the ruling market rate. PW-1 was, thereafter, questioned on another topic viz., difference in the rates in respect of various transactions during a given month when the NAV was constant for the entire month. The attention of PW-1 was invited in this connection to the Security Ledger (Movement) [Exhibit-R2 (21) (Colly.)]. PW-1 was extensively asked questions in respect of purchase of Canpremium from Finolex in December, 1991 and January, 1991. Si .....

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..... be correct to say that contract notes go to 4-6 decimal points because they represent borrowings and repayments at certain rates of interest?" PW-1 has answered that this was possible as the rates included the interest. In fact, this point supports the case of the Petitioners because neither sale nor purchase on 20-12-1992 and 13-5-1992 are at 4 decimal points. Thereafter, PW-1 was extensively cross-examined relying on the entries at page 327 of the Security Ledger (Movement) [Exhibit-R2 (21) (Colly.)] in respect of sale of Canpremium to Finolex. He was asked as to whether the transactions were reversals. In reply, PW-1 has stated that they could be reversals. But that he needed to look at the deal pad. However, PW-1 has reiterated that the suit transaction of 13-5-1992 was not a reversal. At this stage, it may be noted that deal pads were not shown to PW-1 on entries. After looking at the Bhav Copy, PW-1 deposed that scrips were sold at below the market price on 13-5-1992. However, PW-1 was also shown market quotes of Candoubles as on 3-5-1991, 1-10-1991, 20-12-1991, 30-4-1992, 6-5-1992, 13-5-1992, 14-5-1992 and 29-5-1992 [Exhibit-R3 (4) (Colly.)]. This was on the footing that the .....

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..... W-1 has stated further that M.K. Ashok Kumar was suspended on 2-6-1992 whereas, S. Mohan was suspended on 18-11-1992. They were charge-sheeted on 4-12-1992. At page 325 of his evidence, PW-1 has further stated that on 20-12-1991 Canpremium was purchased by Canfina from Citibank at the rate of Rs. 11.25 and the same was sold on 13-5-1992 at the rate of Rs. 14 which resulted in a difference of Rs. 2.75. PW-1 was asked whether Rs. 2.75 represented the profit. The answer given by PW-1 was it represents the difference . This answer is of some importance. Profit, basically, is calculated in terms of sale price. One has to deduct the cost from the sale price. The contractual rate of a transaction even if it is off market, will also result in profit in broad sense and yet in the strict sense it would only be a difference. Moreover, the difference could be a yield or a return for accommodation of the borrower. At page 336, PW-1 has reiterated that the deal of 13-5-1992 did not square of the deal of 20-12-1991. That on 20-12-1991 Canfina purchased the BR from Citibank against payment which was latter on exchanged on 13-5-1992 on sale by Canfina to Citibank. Hence, it was a BR based transacti .....

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..... rest payable in respect of the bonds. That, after securing the benefit, the bonds were normally bought track by Canfina. On this point, the learned counsel for respondent No. 3 asked PW-1 whether the said Bonds were sold at rates higher than the market price because of the tax reliefs to which PW-1 answered that he was not aware of the terms and conditions of the sale and purchase. On the next point of the value of the deals entered into by the Petitioners on PMS account, PW-1 agreed at page No. 402 that the total face value of the deals entered into by Canfina during the period 1-4-1991 to 23-5-1992 was of Rs. 90,000 crores on PMS account. This line of examination was to show that the suit transactions were on PMS accounts. At this stage, the Court would like to observe that merely because the funds came from PMS clients would not indicate that deals were PMS deals because under the RBI guidelines they have to be at market rates. This point has been discussed by me subsequently. On the next point, PW-1 was asked as to why 80 lakhs Canpremium units were not sold by Citibank to HPD. PW-1 has rightly stated that he cannot answer. Further, at page 417 of his evidence, PW-1 has stated .....

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..... name of Canara Bank and the proceeds thereof were credited to Canfina s account at Bangalore by way of IBAs. That, all deals were struck by M.K. Ashok Kumar and S. Mohan. That, on 15-5-1992, both the dealers were in Bombay, viz., M.K. Ashok Kumar and S. Mohan. That, on 15-5-1992, PW-1 was on leave. That, on 15-5-1992, the above two dealers entered into purchase transactions of the two scrips from Dhyan Investments. That, S. Mohan had personally informed PW-2 about the purchase transactions of 15-5-1992. That, PW-2 was instructed by S. Mohan to issue the cheque for Rs. 62.50 crores on 15-5-1992 - Exhibit-I in favour of Syndicate Bank [Bankers of Dhyan Investments.] Accordingly, PW-2 had drawn the cheque. According to PW-2, the delivery was to come in the form of physicals and not in the form of BRs. That, the delivery in the form of physicals did not come on 15-5-1992 although Canfina received the (sale) cost memo of Dhyan Investments - Exhibit-M in the morning of 15-5-1992 pursuant to which, PW-2 had drawn the cheque for Rs. 62.50 crores. That the cheque was written by P.B. Shinde - clerk. It was signed by PW-2. It was counter-signed by another officer K.D. Prabhu. Accordingly PW- .....

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..... of Canfina on 26-8-1992. PW-2, in his cross-examination, maintained that, at all times, he had the authority to issue cheques for and on behalf of Canara Bank, but not of the Petitioners. At page 527 of his evidence, PW-2 has deposed that although he was not given power of attorney, the cheque-Exhibit-I was signed by him only after he was told by the Registered Office that an IBA would follow. At page 528 of his evidence, PW-2 has further deposed that whenever PW-1 was absent, the dealers were informed and that, in the absence of PW-1, PW-2 used to do the work of signing of cheques. That, Canara Bank had issued the Power of Attorney under which he used to sign cheques of Canara Bank. No such Power of Attorney was executed by the Petitioners. That, normally striking of the deals was done by the dealers at Bangalore viz., M.K. Ashok Kumar and S. Mohan. That, M.K. Ashok Kumar was the Chief Dealer. That, PW-2 had no personal knowledge about the striking of the deal dated 15-5-1992. However, PW-2 has deposed, at page 535 of his evidence that it was S. Mohan who specifically informed him about the deal of 15-5-1992 although he was not aware which of the two dealers had struck the deal an .....

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..... on from time to time on behalf of the Chief Dealer - M.K. Ashok Kumar. 16. Thereafter, Canfina led evidence of PW-3 - Officer from Andhra Bank. This evidence proves payment of Rs. 14.50 crores on 18-5-1992 by HPD to Citibank. 17. Thereafter, Canfina examined Narayan Setty [PW-4] Company Secretary, who joined Canfina in 1999. Essentially, this evidence was led by Canfina to prove that J.V. Shetty had no authority under the articles of association to issue directions as contained in the letter [Exhibit-R3 (10)] dated 7-5-1992. This line of examination was objected to by learned counsel appearing on behalf of respondent Nos. 2 and 3. By my ruling dated 29-9-2000, this objection was upheld. However, PW-4 was cross-examined by the learned counsel for respondent No. 2. In his cross-examination, PW-4 deposed that Exhibit-R3 (10) being the letter dated 7-5-1992 has been referred to in Exhibit-R2 (6), which is the Board Note No. 847 dated 11-6-1992. This answer was given after reading Exhibit-R2 (6). PW-4 has no personal knowledge as he was deputed in Canfina in 1999. PW-4 has further deposed in his cross-examination that although, the Board of Directors did not disagree with the contents o .....

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..... period. He pointed out that even the rates are not in dispute. He pointed out that Canfina sold the two scrips much below the market price to Citibank. That, Citibank sold to HPD, a portion of the total number of units on a profit margin of 10 paise on each of the two scrips, viz., at the rate of Rs. 14.10 in case of Canpremium and at the rate of Rs. 16.60 in the case of Candoubles. He pointed out that even these two rates are well below the market rates of Rs. 20 and Rs. 30. However, on the contractual rates, Citibank made a profit at 10 paise per unit which, in absolute figure, was Rs. 27.50 lakhs. Mr. Shah submitted that although Citibank sold the scrips at 10 paise profit margin to HPD, HPD in turn, sold the same scrips on 15-5-1992 to Dhyan Investments at almost the market rate, viz., at the rate of Rs. 19.75 in the case of Canpremium and Rs. 29.75 in the case of Candoubles at a total consideration of Rs. 61.8125 crores. In other words, HPD purchased the two scrips from Citibank for Rs. 40.65 crores and HPD sold the two scrips to Dhyan Investments for Rs. 61.8125 crores. This was on 15-5-1992. On 15-5-1992 thereafter, it is not in dispute that Dhyan Investments sold the said s .....

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..... of Canfina conspired with respondent Nos. 1, 2 and 3 to siphon of Rs. 62.50 crores from the accounts of Canfina. He contended that evidence shows that Citibank, HPD and Dhyan Investments were aware of the market rates which they applied in two out of four deals. He further contended that no Financial Institution would part with Rs. 62.50 crores without receiving delivery of scrips. That, even if delivery would have been effected, the rates indicate device to withdraw Rs. 62.50 crores. He pointed out that, but for the connivance of the two dealers - Respondent Nos. 4 and 5, no Financial Institution would have parted with the scrips at such low rates and rebought them at market price. He further pointed out that after the scam broke out, the above two dealers - S. Mohan and M.K. Ashok Kumar (respondent Nos. 4 and 5) came to Bombay in May 1992 to settle the outstanding BRs. That, no other officers came. He contended that the (sale) cost memo [Exhibit-D] has been signed by S. Mohan. He further points out that on 15-5-1992, the cheque of Rs. 62.50 crores [Exhibit-I] was collected by S. Mohan from PW-2. He contended that there is no evidence, thereafter, as to on what basis S. Mohan par .....

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..... n 114 of the Evidence Act and submitted that apart from section 10, it was open to the Court to presume that the contents stood proved particularly, in view of the fact that Dhyan Investments admits the letter and its contents. In fact, it is the case of Dhyan Investments that there was a contract with HPD on 15-5-1992 under which HPD agreed to deliver the scrips, not to the respondent No. 3, but directly to the Petitioners. According to the learned counsel, this stand proves that HPD had assured Dhyan Investments that there was a ready buyer of the scrips at market price, viz., the Petitioners. Hence, the learned counsel submitted that the contents of the letter [Exhibit-O] stood proved. He contends that, had it been an independent transaction between HPD and Dhyan Investments, the name of M.K. Ashok Kumar would not have figured in Exhibit-O. This circumstance also links respondent No. 4 to the said conspiracy. He contended that in a normal genuine transaction, Dhyan Investments would not have parted with Rs. 61.8125 crores without receiving delivery. Similarly, Canfina would not have parted with Rs. 62.50 crores without receiving delivery. He pointed out that similarly, Exhibit-O .....

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..... -12-1991. Mr. Shah further pointed out that even according to the two dealers the respondent Nos. 4 and 5 therein, the deal of 13-5-1992 had no connection with the earlier transaction dated 20-12-1991. In fact, according to the dealers, the suit transactions were arrived at to compensate Citibank to the extent of Rs. 22 crores in respect of the transaction of sale of 9 per cent Tax Free Bonds worth Rs. 450 crores which took place in January/February, 1992. This plea of the dealers show that they have not linked the deal of 13-5-1992 to the deal of 20-12-1991. Mr. Shah points out that a specific issue No. 3 was raised under which onus was placed on respondent Nos. 4 and 5 to prove that the suit transactions were arrived at to compensate Citibank. He contended that the dealers abandoned the issue. That, they have abandoned the plea. That, in the Affidavit in Reply filed by the dealers, their only contention was that the suit transactions were arrived at by J.V. Shetty, M.V. Kamath and his associates in the Board of Directors of Canfina. It is for this reason that the name of J.V. Shetty finds place in the pleadings of the dealers. However, in view of the fact that the dealers have fa .....

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..... bank on 15-5-1992. In view of the said admission, it is not open to Citibank to allege that their transaction with HPD was dated 18-5-1992. He contended that Citibank also has tried to distance itself from the transactions from HPD by alleging that they had entered into the deal on 18-5-1992. Mr. Shah further contends that no evidence has been led by Citibank. He contends that Citibank had failed to produce the deal slip, the Transaction Register and other Registers to show that they had entered into the deal on 18-5-1992. That, Citibank has not produced the accounts of HPD in their books. He contended that Citibank had deliberately alleged that the transaction was dated 18-5-1992 in order to come out of the circuit of conspiracy between 13-5-1992 and 15-5-1992. Mr. Shah further points out that Exhibit-O shows that the entire arrangement was under the instructions of HPD. He contends that Citibank has falsely alleged that their deal with HPD was on 18-5-1992. He points out that Exhibit-O shows that M.K. Ashok Kumar had assured HPD and Dhyan Investments that Canfina would buy the scrips at the rate of Rs. 20 and Rs. 30 on 15-5-1992. Exhibit-O also shows that HPD had entered into a d .....

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..... nvestments and from Dhyan Investments to HPD and, from HPD, Rs. 21 crores had, once again, gone to Dhyan Investments. Mr. Shah contends that none of the parties insisted on physicals being given. That, above contracts were only devised to create a cash outflow of Rs. 62.50 crores from the Petitioners. Mr. Shah further states that in a civil conspiracy, the Court is required to examine the reasonable probabilities. He contends that one fails to understand why, had it been a genuine transaction, Citibank did not sell directly to Dhyan Investments the two scrips at the rate of Rs. 19.75 and Rs. 29.75. He further points out that there is no explanation as to why Citibank could not have sold the two scrips directly to Canfina at the rate of Rs. 20 and Rs. 30 for Rs. 62.50 crores. Hence, he contends that the entire circuitous arrangement was arrived at to provide benefits to HPD as also to Dhyan Investments. Mr. Shah further pointed out that Citibank sold the two scrips to HPD for Rs. 40.65 crores. That, by letter dated 20-5-1992 - Exhibit-P, HPD authorised his representative to collect the delivery of the two scrips from Citibank. He pointed out that it is not in dispute that Rs. 14.50 .....

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..... s to him (HPD) and, therefore, he gave that assurance on 15-5-1992 to Dhyan Investments. He further states that he was under the impression that Citibank had delivered the scrips directly to Canfina. This averment, according to the learned counsel for Canfina, which is contained in para 5( b ) of the Affidavit of HPD [part of Exhibit-JJ (Colly.)] proves that HPD had entered into the contract with Citibank on 15-5-1992 and not on 18-5-1992. Moreover, Citibank has avoided to disclose accounts of Dhyan Investments in its books. Citibank has avoided to disclose its books of account, ledgers, cost memos and Registers. Citibank has failed to disclose any documentary evidence showing cancellation of sale in respect of Canpremiums when the cheque for Rs. 26.15 crores stood bounced. Further, the learned counsel for Canfina invited my attention to the order passed by this Court on 2-3-2000 in Chamber Summons No. 3 of 1999 taken out by Canfina against Citibank to enforce disclosure of documents. At this stage, it is important to note that, according to Citibank, they had entered into the transaction with HPD on 18-5-1992 as recorded on 11-7-1992. [ See para 1 of the order dated 2-3-2000 passe .....

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..... remiums on 15-5-1992, Dhyan Investments purchased the said units at Rs. 10 per unit at the par value from the market. That, the amount was paid by cash. However, the learned counsel points out that Dhyan Investments has referred to the market and not Citibank. That, this was deliberately in order to show that transaction of Citibank with HPD was not within the circuit. He contends that there is no broker in the transaction under which Canpremium units were purchased by Dhyan Investments. However, the records show that the scrips were purchased from Citibank. Mr. Shah points out that now in the course of arguments it is conceded that the scrips were purchased from Citibank. However, Mr. Shah points out that suddenly on 10-7-1992, Dhyan Investments realises that HPD had not delivered the scrips. That, suddenly it goes to Citibank. That, Citibank promptly accepts the offer of Dhyan Investments. That Citibank agrees to sell at par value by suffering a loss of Rs. 8 crores and that suddenly physicals are produced by Citibank and delivered by Citibank to Dhyan Investments. In this connection, Mr. Shah invited my attention to the evidence of PW-1 that the scrips were delivered to him by C .....

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..... uld not have worked out. That, Dhyan Investments has not suffered any loss as alleged because out of Rs. 21 crores, they spent Rs. 20 crores to buy Canpremium units from Citibank on 10-7-1992 leaving a balance of Rs. 1 crore with Dhyan Investments. Mr. Shah contends that an adverse inference should be drawn against Dhyan Investments, HPD and Citibank for not leading any evidence. He points out that, even according to HPD, the cheque for Rs. 26.15 crores was handedover to Citibank. That he has made total payment of Rs. 40.65 crores. According to HPD, the cheque for Rs. 26.15 crores was not to be encashed. That, it was to be encashed only if Citibank had paid a similar amount to him under some previous transactions. That, the purchase of Canpremium by HPD from Citibank was to be netted off against some other outstanding transactions. No evidence has been led by HPD. Similarly, it is contended that Citibank also never called upon HPD to make payment of Rs. 26.15 crores after HPD s cheque allegedly bounced. In fact, Citibank returned part of the amount to HPD out of Rs. 14.50 crores paid by HPD towards purchase of Candoubles. The letter [part of Exhibit J (Colly.)] dated 21-5-1992 from .....

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..... has pleaded the above loss on the basis of transactions being arrived at off market rates. He points out further that in this case Canfina could have made more profits had the transaction taken place at the market rates. Essentially, he contends that the case of Canfina is that they have suffered loss of profits in the above circuitous transactions. Mr. Shah further points out that in the present matter, the basic point, on which conspiracy is alleged, is that the rates as prevalent on 13-5-1992 and 15-5-1992 for the two scrips were Rs. 20 and Rs. 30 respectively whatever may be NAVs. That, as compared to the rates at which the two scrips were purchased on 15-5-1992 by Canfina, one has to compare the rates at which Canfina had made to sell the two scrips, viz., Rs. 14 and Rs. 16.50 and thereby in the process Canfina had suffered a loss of Rs. 22.1250 crores. He contends that this is a matter of plain arithmetic. He contends that the entire circuitous flow of transactions show that the rates were structured so as to cause loss to Canfina. He contended that in the very first instance, Petitioners goes out of pocket by Rs. 62.50 crores and, thereafter, from that amount Dhyan Investmen .....

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..... to cause loss stood proved. That, Canfina, in fact, suffered a loss of Rs. 22.1250 crores in the process. 19. Mr. Rao, the learned counsel appearing on behalf of HPD, contended that the present Petition is filed for damages. That, it is not a petition filed on breach of contract. That, Canfina in the Petition had alleged criminal conspiracy on the ground that the name of HPD had not been disclosed in the suit transactions though, he was an intermediary/broker. Mr. Rao contended that no evidence has been led by Canfina to show that HPD acted as a broker in the sale transaction of 13-5-1992. He further contended that the second circumstance, on which Canfina has placed reliance is that the said sale was at a low price. Mr. Rao contends that on this point also no evidence has been led by Canfina. On the other hand, he contends that the voluminous evidence brought on record in cross-examination of PW-1 by the Respondents show that the said sale was at the market rate. He contended that Canfina is a Financial Institution. He contended that no enquiry or investigation was done departmentally by Canfina at any point of time to ascertain as to whether the sale took place allegedly at the l .....

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..... Dhyan Investments on 11-7-1992 and 15-7-1992. That, HPD was not involved in delivery. Hence, he contends that HPD was not the broker in those deals. Mr. Rao further points out that none of the witnesses of Canfina have asserted loss to Canfina. Mr. Rao contended that they have not uttered a single word on conspiracy or loss to Canfina in their evidence. Mr. Rao contended that, looking to the nature of the evidence led on behalf of Canfina and also in view of the fact that the respondent No. 1 was a notified party facing prosecution, there was no question of the respondent No. 1 stepping into the witness box. Mr. Rao, however, as a counsel, after taking instructions from HPD who was present in Court, stated that HPD had purchased the scrips from Citibank on 15-5-1992 for Rs. 40.65 crores. Mr. Rao further stated that HPD had fulfilled his obligations to Citibank when he purchased the two scrips. He, however, denied the claim of Citibank that the balance of Rs. 26.15 crores could not be paid as the cheque of HPD bounced. That, HPD had paid an excess of Rs. 2.05 crores. That, HPD on the same day had also issued a cheque for Rs. 26.15 crores, which was to be encashed by Citibank only o .....

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..... itionally accepted delivery of the two scrips on 11-7-1992 vide letter [part of Exhibit-K (Colly.)] and, similarly, Canfina accepted Canpremium on 15-7-1992 vide letter dated 15-7-1992 [part of Exhibit-K (Colly.)]. Mr. Rao contended that, under the Evidence Act, the act of an accused is not binding on the co-accused. However, the exception is in section 10 of the Evidence Act. Mr. Rao, however, contended that even under section 10 of the Evidence Act, the burden is on Canfina to prove prima facie case of conspiracy before the act of one conspirator could be made on the other. Mr. Rao submitted that in this case, Canfina has failed even to make out a prima facie case of conspiracy. Hence, he contended that the contents of the letter [Exhibit-O] cannot be used against the other Respondents. In fact, he submitted that proof of execution is not the proof of the contract. Mr. Rao further pointed out that, in the present case, no foundation has been laid by Canfina to invoke provisions of section 3 and section 114 of the Evidence Act. He further submitted that in the present case loss has not been quantified by Canfina. That, the pleadings are vague. That, Canfina has not spelt out in th .....

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..... contended that in the circumstances, in this case, the following ingredients were required to be proved by Canfina viz. ( a ) existence of agreement; ( b ) agreement to cause loss to Canfina; ( c ) each of the alleged conspirator must be aware of and interest in achieving the end result and lastly, unity of object. He contended that, in this case, Canfina has failed to prove the above ingredients. He contended that, in the present matter, there is no evidence to connect respondent Nos. 4 and 5 with the alleged conspiracy. He contended that common design has not been proved and, therefore, section 10 does not come into picture. He contended that no evidence of common intention to cause loss or to enrich HPD or Dhyan Investments has been led. He contended that the basic test is :- two or more persons brought together to attain illegal object. He contended that an express explicit agreement need not be proved. That, even acts manifesting such an agreement would suffice. He contended that concurrence cannot be inferred by the Court from irrelevant facts artfully arranged so as to give an appearance of coherence. He relied upon several authorities in support of his above contentions. Mr .....

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..... that learned counsel for Canfina conceded, on instructions, that the above transactions took place on PMS accounts. Mr. Dwarkadas next contended that Canfina had failed to disclose facts which were within their knowledge. That, this was done deliberately. That, had these facts been disclosed, Canfina knew that it s claim would stand dismissed. That, in any event, Canfina ought to have proved that the funds belonged to Canfina for entering into the suit transactions. In the alternative, they ought to have pleaded that the funds belonged to their customers. He submitted that this material fact is deliberately suppressed. He contended that, by filing the above Petition, Canfina is trying to knock out monies for loss not suffered by Canfina. That, Canfina should have fairly informed the Court that funds belonged to PMS clients and, that, they ought to have proved that they were liable to reimburse their customers either on their own or on account of their customers having made a claim on them. That, they ought to have proved that they have indemnified their clients. That, the Petitioners ought to have established actual loss or contingent loss. Mr. Dwarkadas further contended that Can .....

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..... d to testify on the following points, viz., who was the officer in charge, to whom the transaction was reported particularly, when IBA was received from the Bangalore office representing an amount of Rs. 51.57 crores being the amount paid by Citibank to the Petitioners, which the Petitioners now claims to represent the sale price at an undervalued rate. Mr. Dwarkadas submitted that the evidence in cross-examination shows that, from time to time, during the period 1991 and prior to May, 1992, deals were struck at off market rates which was not a new phenomenon and, therefore, there was nothing abnormal about the suit transactions being struck on 13-5-1992 at an off market price. Mr. Dwarkadas further submitted that Canfina ought to have proved that as to why they gave full and unconditional discharge to the cost memos of Dhyan Investments when Canfina received delivery of the two scrips on 11-7-1992 and 15-7-1992 [ see Exhibit-K (Colly.)]. Mr. Dwarkadas further contended that Canfina ought to have explained as to why their Petition is silent about the deal of 20-12-1991 particularly, when the record shows that the deal of 13-5-1992 was based on BR exchanged with Citibank and by whic .....

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..... it transactions. Mr. Dwarkadas next contended that the evidence led by Canfina only shows that there was no loss suffered by Canfina as the suit deals were struck on PMS accounts. He invited my attention to the statement of the learned counsel for Canfina, on instructions, that the suit deals were struck on PMS accounts [ see pages 346 and 347 of the Notes of Evidence]. He further contended that under Exhibit-R2(6) being Note No. 847 dated 11-6-1992, Canfina was required to allocate the suit transactions to a particular PMS client. That, no evidence has been led to show that the suit transactions were allocated to a particular PMS client. That, these facts were known only to Canfina and since Canfina has failed to prove the loss as the funds did not belong to them, there was no question of this Court passing a decree in their favour. That, Canfina has failed to prove the loss and, therefore, no actionable wrong took place. Hence, section 10 of the Evidence Act is not applicable. He contended that Exhibit-R3 (34) [RBI Guidelines regarding PMS] shows that Canfina was only entitled to a fixed amount of fees. That, the loss, if any, was belonged to the clients. That, Canfina cannot cla .....

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..... 92, Canfina had received the scrips for which Canfina had paid Rs. 62.50 crores. Therefore, one fails to appreciate as to how profit has accrued unlawfully to Dhyan Investments. He further points out that there is no oral evidence of any of the witnesses that loss had been caused to Canfina on the sale of scrips to Citibank on 13-5-1992. That, even according to para 9( e ) of the Petition, HPD had sold the scrips to Dhyan Investments at a marginal profit. He contended that because now it is established that the deal of 15-5-1992 was ratified by the Board, Canfina has changed its stand and it is now relying on the loss which accrued to them on the sale transaction of 13-5-1992. He further contended that in view of section 199 of the Contract Act and in view of the fact that the Petitioners have alleged circuitous flow of securities, if the transaction of 15-5-1992 stood ratified, then the transaction of 13-5-1992 also stands ratified because, even according to the Petitioners, both the above contracts from part of one transaction. The Petitioners have alleged that the contracts of 13-5-1992 and 15-5-1992 form part of conspiracy. If that is so, then ratification of contract of 15-5-1 .....

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..... intained regarding the instructions received by him from the dealers. At page 483, PW-1 has stated that the deal slips were written in Bangalore under instructions of the dealers. That, he had no occasion to see the deal slips prepared in Bangalore. That, he had no personal knowledge about the procedure followed by the dealers in Bangalore regarding the security transactions and also with regard to the entries in the deal pad. At page 484, PW-1, in his cross-examination, has deposed that he saw the deal slip dated 13-5-1992 for the first time only on 26-9-2000. He, however, deposed, at page 484, that there were three modes of execution of security transactions, viz., issue of/exchange of BRs, SGLs and physical deliveries. He has further pointed out, at page 485 of his evidence, that it is only from the other records that he could tell the Court as to which mode of execution was adopted. It is for this reason that PW-1 has categorically affirmed that he has no personal knowledge about the terms and conditions of the deal nor did he possess any knowledge regarding the manner in which the deal slips were written. Mr. Dwarkadas, the learned counsel appearing on behalf of Citibank, cont .....

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..... ted 30-11-1991, which only refers to authority, inter alia, being given to M.K. Ashok Kumar and not to S. Mohan. That, M.K. Ashok Kumar was the Chief Dealer, to whom the authority was given. That, when Exhibit-R3(10) was shown to PW-1 and PW-2, neither PW-1 nor PW-2 was in a position to affirm or deny as to whether the above two dealers could have struck the deals. In the circumstances, the learned counsel for Citibank contended that the issue as to whether respondent Nos. 4 and 5 struck the deal should be answered in the negative as not proved. He contended that in the case of conspiracy the basic ingredient is common intention. That, all the conspirators should think of the same object when they enter into conspiracy. That, in the present case, the deal had not been struck by respondent Nos. 4 and 5 and there was no common intention and, therefore, the allegation of conspiracy is not proved. He contended that even on the question of fraud Canfina has failed to give full particulars in the Petition. That, Canfina was duty bound to plead and prove the particulars. Therefore, if it is alleged by Canfina that the Respondent Nos. 4 and 5 were part of conspiracy, then the burden was on .....

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..... [ see page 7 of Exhibit-R2(9)] shows ratification of the letter of J.V. Shetty by the Board. Mr. Dwarkadas, therefore, contended that once the probability of S. Mohan having no authority to enter into the deals is established then the hypothesis of good faith would come in and, therefore, conspiracy or fraud have not been proved. He contended that the above Exhibit-R2(6) and Exhibit-R2(9) show implementation of the letter of J.V. Shetty dated 7-5-1992 [Exhibit-R3(10)] by the Board which ratifies the decision of J.V. Shetty dated 7-5-1992. Similarly, he contended that, in the present matter, there was positive evidence to show that J.V. Shetty was in Bombay in May 1992 [ see page 136 of the evidence of PW-1]. Similarly, PW-1 has also deposed, at page 320 of his evidence, that the letter [Exhibit-R3(10)] indicated that the authority of the Chief Dealer was withdrawn by J.V. Shetty on 7-5-1992. To the same effect is the deposition of PW-2. Mr. Dwarkadas contended that, in order to get over the answers given by PW-1 and PW-2, the Petitioners took up the plea that the letter of J.V. Shetty was issued ultravirus the articles of association, which the Court, rightly, disallowed. He furthe .....

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..... 18-5-1992. He further contended that the contents of Exhibit-P being the letter of HPD to Citibank dated 20-5-1992 have not been proved. Hence, Mr. Dwarkadas contended that there was nothing to show that payment of Rs. 14.50 crores did not pertain to the sale of scrips on 18-5-1992 by Citibank to HPD. He contended that there is no evidence to indicate that Citibank s transac- tion is not of 18-5-1992. He contended that none of the documents - Exhibit-J(Colly.), Exhibit-N or Exhibit-P would indicate that Citibank s transaction was not of 18-5-1992. He contended that none of the above documents would show that Citibank s transaction took place between 13-5-1992 and 15-5-1992. He further contended that on 11-7-1992, PW-1 addressed a letter to Citibank [Exhibit-N] acknowledging receipt of Candoubles from Citibank. He accordingly contended that all these documents clearly indicate only delivery of scrips to Canfina. They did not prove conspiracy. He contended that, in order to complete the circuit, Canfina was bound to prove that the sale of scrips by Citibank to HPD took place between 13-5-1992 and 15-5-1992. He contended that even if issue Nos. 12 and 13 remained not proved, it would .....

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..... Exhibit-A1 do not constitute the evidence of conspiracy even against Dhyan Investments. That, Exhibit-A1 shows that Rs. 21 crores were received by Dhyan investments vide cheque. On the other hand, Exhibit-C indicated the account of HPD with Andhra Bank, which also shows that HPD paid Rs. 21 crores on 15-5-1992 to Dhyan Investments by transfer. Hence, it is not possible to link the two transactions to Rs. 61.8125 crores. Mr. Dwarkadas contended that mere production of the account [Exhibit-A1] of Dhayn Investments in the books of Syndicate Bank cannot bind Citibank. He contended that factually, it is true that Dhyan Investments had no money to pay HPD Rs. 61.8125 crores on 15-5-1992. That, it cannot be denied that HPD expected monies to come from Canfina on the sale of the scrips to Canfina. In fact, HPD has assured Dhyan investments that there was a ready buyer in Canfina and, therefore, even if there was no amount in the account of Dhyan Investments on 15-5-1992 to pay Rs. 61.8125 crores to HPD, HPD did expect the amounts to come from the sale proceeds. Hence, the mere circumstance that Dhyan Investments had no money to pay HPD on 15-5-1992 does not prove conspiracy. He contended t .....

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..... tated on examination of accounts that Rs. 21 crores have not come out of Rs. 61.8125 crores. He further contended that, under the circumstances, the accounts [Exhibit-A1, Exhibit-C and Exhibit-R3(30) (Colly.)] cannot prove conspiracy. That, they are merely entries. That, by mere reading of entries, one cannot even ex facie prove conspiracy. Mr. Dwarkadas further contended that, in the Petition, Canfina has chosen not to rely upon the contract of 18-5-1992 as a part of conspiracy. He, therefore, contended that section 10 cannot be invoked by Canfina. That, Canfina was aware of the contract dated 18-5-1992. That, it was disclosed in the Affidavit of Documents filed by Citibank. However, they have chosen not to rely upon the contract note as part of the conspiracy. That, they have alleged the period of conspiracy from 13-5-1992 and 15-5-1992 and, therefore, it was not open for Canfina to go beyond the two dates. Mr. Dwarkadas further contended that Canfina has alleged the act of entering into the deal as part of conspiracy and not the performance of the contract. He contended that the delivery order dated 11-7-1992 [part of Exhibit-J (Colly.] from Citibank to Canfina was not proved. I .....

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..... tments dated 11-7-1992, show that the scrips were received by Canfina under instructions of its Managing Director viz. K.N. Kamath. He contended that there is an endorsement of PW-1 on Exhibit-K, which clearly shows that PW-1 received the scrips from Citibank under instructions from K.N. Kamath. If that was so, then there is no explanation as to why Canfina has not examined its Managing Director - K.N. Kamath. That, K.N. Kamath was also aware of the deal. Mr. Dwarkadas further contended that, in the present case, it is alleged that the deals were entered into by M.K. Ashok Kumar and S. Mohan. He contended that, even according to PW-1, the said two dealers have entered into the suit transactions. If that be the case, then there is no explanation as to why, while accepting the delivery of the scrips on 11-7-1992, PW-1 obtained instructions from K.N. Kamath - Managing Director of Canfina. He further points out the evidence of PW-1, which says that he was asked by K.N. Kamath - Managing Director to contact the Registered Office. He contended that there is no such endorsement on Exhibit-K (Colly.). He contended that this part of the addition to the deposition of PW-1 shows that PW-1 has .....

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..... ould be given to the evidence of PW-1 when he has asserted that Ramesh Kumar came to him on 11-7-1992 to give delivery of Candoubels [ see pages 129 and 272 of the notes of evidence.]. He further contended that the above deposition, involving Ramesh Kumar, was also in order to absolve K.N. Kamath, whose name appears on the endorsement made by PW-1 on Exhibit-K (Colly.). Mr. Dwarkadas further contended that Exhibit-O is the letter of HPD to Dhyan Investments dated 15-5-1992 stating that the delivery would be given by HPD to Canfina. He contended, however, that the contents of the said letter, which refers to the name of Ashok Kumar, has not been proved. However, Exhibit-JJ (Colly.) is on record. It is Misc. Petition No. 46 of 1995. In that Petition, it is proved that Exhibit-O has been relied upon by Dhyan Investments. It is also relied upon by HPD. But, Exhibit-JJ (Colly.) is not binding on Citibank. Citibank was not a party to Misc. Petition No. 46 of 1995. Further, Exhibit-O has been written by HPD. It refers to his discussion with one Ashok Kumar. He contended that, even assuming that the contents of Exhibit-O stood proved, no weightage should be given to Exhibit-O which refers .....

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..... iew of the order passed by this Court dated 2-3-2000 in Chamber Summons No. 3 of 1999, Citibank was absolved from leading evidence on issue Nos. 12 and 13. He contended that on 2-3-2000 when Chamber Summons No. 3 came before this Court, the learned counsel has made a categorical statement that they have no material beyond what they have disclosed with regard to the transactions between Citibank and HPD. That, no further steps were taken by Canfina. That, the order of this Court was not challenged in appeal. That, Canfina rests with the statement of the counsel. Hence, Citibank was absolved from leading evidence on issue No. 13. He contended that the order dated 2-3-2000 indicated that the Court had accepted the statements of the learned counsel that Citibank had no evidence regarding the transaction of 18-5-1992, to which Canfina has also agreed. Hence, he contended that this Court cannot draw any adverse inference against Citibank. He contended that all the requisite documents, which were then in possession of Citibank were disclosed. That the Court was satisfied with the statement of the council. That the Court did not proceed to issue-show- cause notice for contempt in the said .....

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..... r of officers in the Registered Office were aware of the deals. Hence, he contended that no explanation has been given as to why those officers have not been called to give evidence on behalf of Canfina. He further contended that there was a back-up department in Bangalore, which took the follow-up action after the deal was struck. He contended that none of those officers have come to depose on behalf of Canfina. He contended that in respect of purchase, Canfina, Bombay Office used to receive IBAs from Bangalore. That, in case of sale, proceeds were credited into Canfina s account at Bangalore. He contended that the evidence on record also indicated that the Bombay Office has no authority to release the funds in cases of purchase without authorisation from the Bangalore office [ see pages 518, 519, 140, 143, 180, 445, 449, 506 and 507 of the Notes of Evidence]. He contended that, even according to PW-1, in cases of sale, cheques were required to be drawn as per the vouchers. The said vouchers preceded the cheques. The said vouchers were required to be signed by two officers [ see Ex-R2(31)]. Therefore, it was contended that looking to the checks and balances mentioned in Note No. 8 .....

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..... t page 226 of his evidence, PW-1 has admitted that reconciliation was required to be done by the dealers in Bangalore because there were number of mistakes in the Registers maintained in Bombay. Mr. Dwarkadas contended that, on this evidence of PW-1 alone, this Court cannot pass a decree. He contended that, in order to protect the officers working in Bangalore, the centralised record has not been produced before this Court. He further contended that even the fact that the suit transactions took place on PMS accounts has been deliberately withheld, which fact would have come to light if the centralised records maintained by the Bangalore Office were to be produced. He contended that records would have further shown that the transactions of 13-5-1992 was a reversal of the earlier BR transaction of 20-12-1991 and, therefore, the said record from Bangalore has not been produced. He contended that, according to Canfina, the suit transactions of 13-5-1992 was a stand-alone transaction. It had no connection with the transactions of 20-12-1991. However, according to the learned counsel, the transactions of 13-5-1992 was a reversal because the documents on record shows that it was a transac .....

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..... 992, it amounted to ratification. He contended that under section 196 of the Contract Act, such ratification was done for consideration received by Canfina. Therefore, it is not open for Canfina to approbate and reprobate. Canfina cannot disown the transactions of 13-5-1992 on the ground that it was fraudulent. Therefore, if one looks at the rate, at which the transactions took place on 20-12-1991 and the amount which ultimately got back to Canfina in the forms of difference, it would show that the transactions dated 15-5-1992 were not at off market transactions. He contended that whenever a BR is issued and, subsequently, it is returned, it amounts to reversal. That, as a consequence of reversal, there is a difference in rates between the rate at which the original deal is done and the rate at which the transaction is reversed. The return is called as a difference. It could be called as a profit or a return. In this case, he contended that Canfina has not abandoned the transactions of 20-12-1991. That, Canfina has maintained that the contract stood discharged. Mr. Dwarkadas contended that the out standing contract dated 20-12-1991 could only be discharged by contract of 13-5-1992. .....

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..... 10) dated 13-5-1992 indicates performance by exchange of BRs and not by delivery of physicals. Mr. Dwarkadas further contended that respondent No. 3 has produced various charts on the basis of entries in various Registers. He has also relied upon Exhibit-R2(14) (Colly.) - Security Ledger (Movement) in respect of Candoubles read with page 210 of the Notes of Evidence. He contended that these entries in Exhibit-R2(14) (Colly.) indicate reversals. He further submitted that there are number of entries in the various Registers which indicate that in some cases of reversals, there was a return which accrued to Canfina whereas in some other case, no such return or difference was paid to Canfina. However, these cannot be said to be fraudulent transactions merely because the difference or return was not paid to Canfina. He contended that if all those transactions were fraudulent, then one fails to understand as to why Canfina has picked only the suit transactions for filing the present suit. In other words, the counsel submitted that the reversals were routine transactions. That, there was nothing abnormal. he contended that number of entries, on the basis of which respondent No. 3 has prep .....

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..... that he had entered into the dealings. As regards the question of PW-2 handing over the cheque to Mohan for Rs. 62.50 crores, it was contended by Mr. Dwarkadas on behalf of Citibank that Exhibit-R2(14) (Colly.) being Security Ledger (Movement) for Candoubles would show that there was an oral understanding between Dhyan Investments and Canfina. That, physicals would be received later on. It is for this reason that an entry has been made on Exhibit-R2(14)(Colly.) which reads Physicals to be received . This is also borne out by the entry dated 15-5-1992 in the Transaction Register [Exhibit-V(Colly.)]. Therefore, there was an agreement between someone in Canfina that physicals would be received later on from Dhyan Investments. This is also borne out by the evidence of PW-1 at page 235 of the Notes of Evidence. Further, it was contended that on 26-8-1992, Canfina had ratified the sale vide resolution of even date [Exhibit-R3(35)(Colly.)]. Accordingly, he contended that in view of the ratification of the sale and in view of the fact that when Dhyan Investments delivered the scrips in July, 1992, Canfina was estopped from challenging the transaction of15-5-1992. Mr. Dwarkadas contended th .....

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..... 92. He contended that, at the highest, the Court can only draw an adverse inference against Citibank to the extent that it had failed to prove that the transactions were cancelled. He contended that even if issue No. 13 is not proved by Citibank, it would not automatically prove Issue No. 7. He contended that the legal burden to prove Issue No. 7 has never shifted. He contended that evidence of Shiva of Citibank [Exhibit-KK (Colly.)], in the previous matter, only indicated that the deal slip triggered follow up action in the back-up office computer. He further contended that in the present matter, if at all, admissions of Shiva in previous proceedings were to be taken as admissions, then the entire record should be considered. In this connection he submitted that Mr. Parthasarathy of Citibank, in the earlier suit, has stated that the deal slips were not made on the date of the transactions. That, they were made only on the date when the transactions were settled and, therefore, the learned counsel contended that if the delivery took place on 11-7-1992, it was clear that the transaction of 18-5-1992 was settled by delivery on 11-7-1992. He contended that earlier when the cheque was .....

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..... ion that the sale was entered into by respondent Nos. 4 and 5; that entries were made in the deal pad Exhibit-R2(10)(Colly.) under the instructions of the said dealers by respondent No. 7; that Candoubles were sold at off market rates; that the said transaction was done in a clandestine manner; that the sale transaction of 13-5-1992 was an abnormal transaction; that the petitioners believed that HPD was the broker but his name has not been intentionally mentioned in Exhibits-D and Q. Mr. Amin next invited my attention to paragraph 10( c ) of the petition. He pointed out that no date is mentioned in paragraph 10( c ) of the petition as to on what date Citibank sold to HPD the two scrips in question. Mr. Amin next invited my attention to paragraph 9( a ) and paragraph 10( d ) of the petition in which the petitioners have admitted that the transaction between HPD and Dhyan Investments took place at the higher rate resulting in higher profits to HPD. Lastly, he invited my attention to paragraph 6( a ) of the petition in the context of the sale of the two scrips by Dhyan Investments to Canfina and he pointed out that in the said paragraph, it is alleged that the scrips were repurchased .....

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..... which the deals were struck and that the oral arguments advanced on behalf of the petitioners, viz., circuitous flow of monies in the reverse direction and that the monies flowed from HPD to Citibank have not been pleaded. Similarly, there is no pleading to the effect that HPD has no funds to buy the scrips from Citibank. Hence, he contended that the Court should not take cognizance of the arguments beyond the pleadings. He contended that in the pleadings, therefore, there are only two pillars on the basis of which conspiracy is alleged, viz., that there were two transactions which took place on 13-5-1992 and 15-5-1992 and the rates at which the contracts were entered into two cause loss to Canfina. That, the said loss was on account of difference in rates. Hence, the learned counsel contended that this Court should not travel beyond the pleadings and that the Court should not take into account the oral arguments of Canfina, viz., lack of funds with Dhyan Investments and HPD on 15-5-1992; non-delivery of scrips on 15-5-1992 to Canfina; and reverse flow of monies from HPD to Citibank. He contended that no particulars of fraud have been pleaded. He contended that petitioners stop on .....

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..... e contended that there is no grievance regarding rate of 15-5-1992. He contended, however, that the transaction of 13-5-1992 was also a normal transaction because it was a reversal of the transaction of 20-12-1991. He contended that Dhyan Investments was not a party to the transaction of 13-5-1992. That Dhyan Investments came to know about the said transaction being reversal of the transaction of 20-12-1991 only in the course of evidence. He next contended that the Board Note No. 847 dated 11-6-1992 [Exhibit-R2(6)]; Resolution dated 26-8-1992 [Exhibit-R3(35)(Colly.)]; Board Note dated 4-1-1997 [Exhibit-R3(7)] and the various letters referred to above addressed by Canfina indicated that Canfina accepted that the transaction of 15-5-1992 was at the market rate. Mr. Amin next contended that on 15-5-1992, PW2 signed the cheque for Rs. 62.50 crores. He contended that, subsequently, on 26-8-1992, the transaction of 15-5-1992 was ratified by the Board [Exhibit-R3(35)(Colly.)]. He contended that the said resolution was passed after respondent No. 4 came to be suspended. He contended that there is no explanation given as to why transaction of 15-5-1992 was ratified on 26-8-1992 if the petit .....

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..... transactions of 15-5-1992. Hence, it was contended that the case of the petitioners in para 4 and para 10 that the deals of 15-5-1992 were struck on account of conspiracy between Dhyan Investments and the dealer resulting in loss, stood disproved. Mr. Amin, however, contended that while ratifying the suit transactions of 15-5-1992, the Board has used the words the rates compared to the earlier sale rate. He contended that there are two aspects of the matter. Firstly, it is alleged that the rate at which Canfina purchased the scrips was inflated. It was much higher than the NAV of Rs. 140 and, therefore, there was conspiracy to cause loss to the petitioners. Secondly, in the petition and in Exhibit-R3 (6)(Colly.), loss is also alleged on the footing that the rates of purchase were on the higher side as compared to the rates on which the scrips were sold on 13-5-1992. He contended that once the Board, in Exhibit-R3 (7)(Colly.), conceded that repurchase rate was the fair rate, then the case of Canfina against Dhyan Investments failed. This admission lacks the basis of alleged conspiracy as regards the transaction of 15-5-1992 with Dhyan Investments. It cannot be said, therefore, in pa .....

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..... that the averments made in para 10( g ) of the petition are disproved. Mr. Amin next contends that the NAV is not equal to market price. He contends that the entire presumption of Canfina that NAV is equal to market price is erroneous. Mr. Amin points out that there was always a mark up between NAV and the market price of a scrip. He contended that in case of quoted scrips, there is NAV and also there is a market quote. For unlisted scrips, he contended that, one has to draw an analogy from scrips which are quoted. It is for this reason that respondent No. 3 have sought to prove that the NAV and market quotes were two different concepts. He contended that in his evidence PW-1 has admitted that for units of Canbank Mutual Fund, NAV is not the same as the market price. He contended that both the above suit scrips were units of Canbank Mutual Fund. Hence, he contended that the basis of the averment in the petition - para 10( g ) - that NAV is equal to market price/fair price is wrong. He, accordingly, contended that once it is proved that NAV is not equal to market price/fair price, then, NAV is not a conclusive factor to decide the fair value of the scrips. He contended that the dif .....

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..... 5-12-1991. He has given a chart based on the evidence of PW-1 at pages 251, 252, 292 to 295 and 297. The first four transactions are of December, 1991. They are in respect of purchase and sale of scrips by Canfina. These entries are relied upon to show that although the NAV for December, 1991 was the same, the rates at which the deals were struck, varied. Mr. Amin pointed out that even when the NAV was constant for the entire month, the scrips were bought and sold at different rates. He contended that the first four items of Chart show that the transactions were struck on the same day, i.e., 5-12-1991 and, yet, they were at rates which differed from one another. Mr. Amin further contended that merely because the rates at which the contracts were entered into differed from the NAV, one cannot infer conspiracy. He relied upon the transactions to show that, even in the past, such transactions were entered into where the rates differed although the NAV was constant for the entire month. Similarly, he relied upon the next chart to show that even on 5-12-1991 when Canfina sold the Canpremium to Growmore at the rate of Rs. 100, it was purchased on the same day at the rate of Rs. 109. He .....

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..... red a loss, which is similar to our case. Mr. Amin contended that there is no evidence to show that the comparable instances were tainted. Mr. Amin next invited my attention to Chart Y-2. This chart has been submitted by respondent No. 3. It refers to sale of Canpremium of f.v. Rs. 11 crores by Canfina to Finolex. The dates of the transactions are 5-6-1992 and 26-6-1991. These two entries show that on 5-6-1991, Canpremium of the f.v. of Rs. 11 crores was sold to Finolex and purchased on 26-6-1991 at the same rate. Hence, Mr. Amin contended that Canfina enjoyed the accommodation for 21 days without payment of interest to Finolex. This chart is relied upon to show that where the rates are common, it could be because of accommodation by a party to Canfina. Mr. Amin, however, contended that the above comparable instances in the various charts have been given only to indicate that the suit transactions were entered into in a routine course of business. He contended that the only argument of Canfina was that since there were four contracts entered into between 13-5-1992 and 15-5-1992 at different gates, resulting a loss to Canfina, there was a conspiracy. He contended that the various il .....

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..... oking to the number of officers, who carried out the follow-up action, indicated that there was no secrecy about the suit contracts. Even the entries were made in the various Registers by Omprakash in the Bombay Office, which indicated that the suit contracts were transparent. That, number of officers were aware of the suit contracts. He further contended that even the PMS record, as maintained in the Bangalore Office duly centralised, clearly shows that several officers knew about the suit contracts. Mr. Amin contended that the best evidence has been deliberately withheld by Canfina because it could have shown that the suit contracts were normal transactions. He contended that the present petition has been filed only because an FIR has been registered. That, there is no other reason why the officers from the Registered office could not have come to depose on behalf of Canfina. Mr. Amin further pointed out that the endorsement on the letter dated 11-7-1992 [part of Exhibit-K (Colly.)] shows that delivery of the scrips by Canfina on 11-7-1992 was under instructions of K.N. Kamath, the then managing director of Canfina. Hence, the evidence of PW-1 at pages 263 and 264 shows that K.N. .....

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..... 2 and 15-7-1992 were leaded, then their case would stand defeated. He contended that the evidence on record shows that the suit contracts were performed by 15-7-1992 by which date delivery of the two scrips were given. This fact is also not leaded in the petition because this fact would have shown that delivery was accepted unconditionally. That, Dhyan Investments was given an unconditional discharge. Further, that even according to the petitioners, the delay in delivery of the scrips was in the normal course of business. He contended that it is for this reason that the alleged circuit is confined only upto 15-5-1992 and not beyond that. These facts have not been deliberately pleaded because had they been pleaded, it would have completely destroyed the case of Canfina alleging conspiracy. Mr. Amin pointed out that the petition is totally silent as to when Canfina came to know about the alleged conspiracy. Similarly, petitioners have suppressed from this Court the contents of Exhibit-3(35) (Colly.) under which the deal dated 15-5-1992 was ratified. So also, they have not pleaded the contents of Exhibit-R3(6) which indicated that the scrips were purchased on 15-5-1992 in accordance w .....

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..... entire petition, there is no explanation regarding this difference of Rs. 8 crores. Hence, according to the learned counsel, the circuit had broken so far as the f.v. is concerned. Mr. Amin next contended that the sale of the two scrips on 13-5-1992 by Canfina to Citibank involved only exchange of BRs whereas, the sale of the two scrips by Dhyan Investments to Canfina on 15-5-1992 involved delivery of physicals bearing distinctive numbers and, therefore, there was no basis for the petitioners to allege that the same scrips which went out came back. Mr. Amin next contended that there are various circumstances which indicated as to why the suit contracts were normal. He contended that even after the scam became public, Canfina continued to deal in securities. He relied upon Exhibit-R3(10) being the letter of J.V. Shetty dated 7-5-1992, Exhibit-R2(9) being the resolution dated 11-6-1992. So also, he relied upon Exhibit-R3(20) being computer-sheets of entries in PMS client s accounts. Therefore, he contended that there was no conspiracy. He contended that the above documents clearly indicate that investments did take place even in the month of May, 1992. Mr. Amin contended that if ther .....

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..... that the contents of Exhibit-O stand proved. Mr. Amin contended that Exhibit-O shows that on 15-5-1992, HPD sold the two scrips to Dhyan Investments. That, on that day there was a willing purchaser in Canfina. That, on 15-5-1992 HPD assured Dhyan Investments that he would deliver the scrips to Canfina. That, the discussion mentioned in Exhibit-O is only regarding payment and delivery and not with regard to entering into the transac- tions. That, from the contents of Exhibit-O, the petitioners want this Court to infer that there was a tripartite meeting. That, from the said meeting, petitioners want the Court to infer that the transactions were of 15-5- 1992. However, according to the learned counsel, Exhibit-O does not prove conspiracy. That, it does not connect Citibank to the alleged conspiracy. That, it does not show that the sale of 13-5-1992 was part of the conspiracy. That, it does not show that the conspiracy was hatched on 13-5-1992. He further contended that HPD had forwarded a copy of the said letter [Exhibit-O] to Canfina. That, this has been stated in the Affidavit in Reply, which is not denied. Hence, there was no conspiracy. That, even in the (sale) cost memo of Dhyan .....

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..... to Misc. Petition No. 46 of 1995 [Exhibit-JJ (Colly.)], HPD had contended that he had not given any assurance of a ready buyer because he had to defend Misc. Petition No. 46 of 1995. It is for this reason that, according to the learned counsel, HPD had put the question of delivery on the shoulders of Citibank in the said reply to Misc. Petition No. 46 of 1995. Mr. Amin conceded that HPD was the broker in the transactions of 15-5-1992 between Dhyan Investments and Canfina. In the circumstances, Mr. Amin contended that it was not open to Canfina to set out a new case regarding agreement to deliver the scrips at a future date and also that Dhyan Investments had no funds. Mr. Amin next contended that in the petition, the petitioners have not disclosed the fact that the sale of 13-5-1992 to Citibank was connected with the deal of 20-12-1991. That, the petition proceeds on the footing as if the contract of 13-5-1992 was independent transactions. That, the petition merely alleges that the contract of 13-5-1992 was a part of conspiracy. That, the petition merely alleges that the contract of 13-5-1992 in respect of Candoubles was arrived at off market rate. Mr. Amin contended that Dhyan In .....

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..... her pointed out that the first three items in Y-3 are transactions based on BRs exchan- ged whereas item No. 4 is based on delivery of physicals. Mr. Amin pointed out further that, initially, PW-1 admitted that items mentioned in Y-3 collectively indicated reversals. However, later on in cross-examina- tion, PW-1 prevaricates and states that he cannot give correct answer without looking at the dealers pad [ see page 311 of the Notes of Evidence]. Mr. Amin points out that later on in re-examination, PW-1 changed his answer to say that the entry at Serial No. 7 of the said chart Y-3 was not a reversal but an outright. That, this answer was given only on the basis of conjecture. [ see pages 464 to 649, 478 to 480 of the Notes of Evidence. Similar answers have been given in the context of Exhibit-R2 (14) (Colly.) [Security Ledger Movement] in respect of Canpremium. Mr. Amin, therefore, submits that the transactions of 13-5-1992 were reversals of the transactions of 20-12-1991. Mr. Amin contended that it is only as a matter of probability that respondent No. 3 has proved that the transaction of 13-5-1992 was reversal of transactions of 20-12-1991. He contended that, according to PW-1, t .....

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..... hly probable that the transactions of 13-5-1992 were borrowing and repay- ment transactions. Mr. Amin contended that, in the evidence which has been brought on record, the entry in the Register shows BR exchanged. Therefore, the burden was on the petitioners to explain the said entry. Mr. Amin contends that it is true that in the Affidavit in Reply, Citibank has admitted that the deals dated 13-5-1992 were independent deals. However, he contends that the said admission of Citibank is not binding on Dhyan Investments particularly because PW-1 has admitted in his evidence that the contracts of 13-5-1992 were reversals of the contracts dated 20-12-1991. Mr. Amin, accordingly, contends that the contracts of 13-5-1992 were reversals. Mr. Amin contends that it cannot be disputed that Candoubles were sold at off market rates and so also Canpremium. However, he points out that this was because the contracts of 13-5-1992 were borrowing and repayment transactions. He contended that Canfina parted with an amount of about Rs. 40 crores on 20-12-1991 without receiving the physicals from Citibank. That, Canfina bought the scrips on 20-12-1991 at the rates higher than the rate at which the scrips .....

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..... t is prepared on the basis of evidence at page 307 of the Notes of Evidence. It shows that on 20-12-1991, Canfina purchased Candoubles at the rate of Rs. 14.25 [ see Exhibit-R2 (14) (Colly.) - Security Ledger (Movement)]. That, the said purchase by Canfina was against the market rate of Rs. 11. That, this was reversed on 13-5-1992 at the rate of Rs. 16.50 when the market rate was between Rs. 30 to Rs. 35. That, it was again at an off market rate. Similarly, on 7-4-1992, Canfina sold Candoubles at the rate of Rs. 32 when the market rate was between Rs. 40 to Rs. 47.50. Mr. Amin contends that PW-1 has stated in his evidence that he was not in a position to answer the question as to why the rates were off market rates. That, the question could only be answered by Ashokkumar Kini or by Managing Director. However, neither the Managing Director nor Ashokkumar Kini has been cross-examined. Mr. Amin next contended that the evidence on record shows that Canfina used to settle the outstanding BRs in the month of May every year. He contended that a settlement of the two outstanding BRs of Citibank dated 20-12-1991 came to be liquidated by the suit transactions dated 13-5-1992. He relied upon .....

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..... ble explanation. Therefore, it rules out conspiracy. Mr. Amin next contended that there were several entries in the Transaction Register, which show that HPD had paid the difference to compensate Canfina. Those entries were shown to PW-1 [ see pages 371 and 372 of the Notes of Evidence]. However, he points out that PW-1 could not explain why payments were made by HPD to Canfina. Mr. Amin contends that chart Y-6, prepared on the basis of the evidence of PW-1 at pages 370 and 379 read with Exhibit-R3 (21) (Colly.) being entry in the Transaction Register, show unexplained payments made by HPD to Canfina during the period 26-12-1991 upto 16-3-1992. He, accordingly, contends that these unexplained payments also indicate why the rates in the suit transactions of 14-5-1992 were at off market rates. He further contended that under chart Y-6, an amount of Rs. 21 crores has been paid during the aforestated period by HPD to Canfina. He contended that it is highly impossible to believe that the officers in the Registered Office, apart from the dealers, were not aware as to why HPD paid these amounts to Canfina. He, therefore, contended that those officers should have been called to depose on b .....

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..... transactions of 13-5-1992 were entered into to compensate Citibank. Mr. Amin contended that these Tax-Free Bonds were essentially purchased by Citibank to obtain the relief under the Income-tax Act, 1961. That, after the interest due date they were required to be purchased back by Canfina. However, they were unable to do so. Hence, the suit transactions were entered into to compensate Citibank. He further contended chart Y-8 shows that the transactions under Serial No. 1 to Serial No. 13 bear the rate ranging from Rs. 90 to Rs. 98 whereas, the last transaction of HUDCO bears the rate of Rs. 86. He, accordingly, contends that the first 13 transactions in chart Y-8 are outright transactions whereas, the transactions between Serial No. 6 to Serial No. 9 have been entered into on 6-3-1992. He, accordingly, contended that in these transactions the rate is different as compared to the transaction of 20-2-1992 which is an outright transaction and, therefore, there is a rate difference. In short, the learned counsel for respondent No. 3 has tried to show that the dealers were right in contending that the transactions dated 13-5-1992 were entered into in order to compensate Citibank. Mr. A .....

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..... l pad. That, one of the officers from the Registered Office at Bangalore have come forward to depose on behalf of the petitioners although, the back-up work was carried out by them. Therefore, the petitioners have failed to discharge their burden. Therefore, the respondents were not required to lead the evidence in rebuttal or to step into the witness box because, on probabilities, they have proved that the suit transactions having entered into in the normal course of business and, therefore, there was no conspiracy. Mr. Amin next contended that there was no documentary evidence to show that respondent Nos. 4 and 5 had entered into the transactions dated 13-5-1992. In fact, on the contrary, the documentary evidence show that they could not have entered into the suit transactions. In this connection, Mr. Amin contended that Exhibit-R2(8) being the Note 30-11-1991 shows that S. Mohan had no authority to enter into or strike the deal. He contended that under Exhibit-R2(8), only the Chief Dealer, inter alia , was entitled to enter into the deals of a specified Amount. He contended that under Exhibit-R2(8), only M.K. Ashok Kumar - respondent No. 4 could have entered into the deals on 13 .....

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..... y made the entries in the deal pad. That, therefore, there is no oral evidence to connect these officers with the striking of the deal of 13-5-1992 and 15-5-1992. Mr. Amin next contended that it is for this reason that Variava, J. [as he then was] gave a separate ruling on 4-12-1996 in Misc. Application No. 236 of 1996 in which he opined in strong works as to why J.V. Shetty, Chairman and M.V. Kamath, Deputy General Manager of Canara Bank and P.A. to J.V. Shetty, have not been joined as party respondents in this case. He contended that after the learned Judge expressed his opinion on 4-12-1996, respondent Nos. 7 and 8 have been joined but not J.V. Shetty and M.V. Kamath. The whole attempt was to protect the higher officers particularly in view of the letter of J.V. Shetty dated 7-5-1992 [Exhibit-R3 (10)]. Mr. Amin contended further that M.V. Kamath was the Deputy General Manager of Canara Bank and P.A. to Chairman of Canara Bank - J.V. Shetty. He invited my attention to Affidavit in Reply of Respondent No. 4 dated 13-11-1995. He contended that vide para 7 of the said affidavit, respondent No. 4 categorically alleged that the suit was filed in a mala fide attempt to save J.V. Shetty .....

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..... e allegations contained against the two dealers in the said letters Exhibit-R3 (6) were false. Mr. Amin next contended that although in the petition, it has been alleged that S. Mohan entered into the suit deals, in the charge sheet given to him [Exhibit-R3 (14)], he has been charged for entering into the suit transactions, in excess of his authority. Accordingly, it was submitted that, according to Canfina, S. Mohan had no authority to enter into the suit transactions but, he exceeded the authority by entering into the suit transactions. Accordingly, it was contended that the petitioners were fully aware that S. Mohan had no authority to enter into the suit transactions. It was contended that this circumstance proves the case put forward by Canfina that S. Mohan never had the authority to enter into the deals. It was contended that a different case was put in the petition deliberately, although, Canfina was aware that S. Mohan had no such authority to strike the deals. It was contended that the petition proceeds on the basis as if S. Mohan had the authority. That, the suit transactions had entered into by S. Mohan and M.K. Ashok Kumar. That, the departmental enquiry proceeds on th .....

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..... That, these pleadings as well as the pleadings in this case show that Citibank had sold to HPD Canpremium of the f.v. of Rs. 20 crores and not Rs. 28 crores. That, both respondent Nos. 2 and 3 admit that the transactions did not go through. That, if the sale of Canpremium was for the f.v. of Rs. 20 crores then the petitioners have failed to explain the gap of Rs. 8 crores because, in that event, Canpremium of the f.v. of Rs. 8 crores remained with Citibank. That, in any event, even the sale of Rs. 20 crores did not go through as the cheque for Rs. 26.15 crores bounced. Hence, petitioners have failed to prove the value and the further flow of Canpremium. Therefore, any inaction or omission on the part of Citibank, in not leading evidence, cannot bind respondent No. 3 or any other respondents herein. Mr. Amin next contended that as regards the sale of the two scrips by HPD to Dhyan Investments, the transaction is not disowned by Dhyan Investments. He contended that Dhyan Investments did enter into the said transaction, but since HPD failed to deliver the Canpremium scrips, as promised, to Canfina pursuant to the assurance given to Dhyan Investments, the contract was not carried out b .....

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..... om the market for Rs. 20 crores when HPD failed to deliver Canpremium to Canfina. That, Dhyan Investments suffered the loss. That, Dhyan Investments instituted Misc. Petition No. 46 of 1995. That, these are the facts which, according to the learned counsel, show bona fides of Dhyan Investments and, therefore, there was no conspiracy. Mr. Amin next contended that according to the petition, there was a conspiracy to cause loss to Canfina. That, in the petition the petitioners have only alleged that the conspiracy was evidenced by a circuitous flow of securities [paras 9( b ) and 9( c ) of the petition]. That, there is no allegation in the petition regarding reverse flow of money from Canfina to Dhyan Investments of Rs. 62.50 crores and from Dhyan Investments to HPD of Rs. 61.8125 crores. Hence, it is a new case which is put by the petitioners. He contended that the only allegation made by the petitioners in the petition was that the circuit commenced on 13-5-1992 when Canfina sold the two scrips to Citibank. That, this part of the circuit is proved false in view of the cross-examination of PW-1. That, the first leg of the circuit was not independent transactions. That, the first leg .....

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..... tended that payment of Rs. 20 crores by Dhyan Investments to buy Canpremiums was not as result of circuitous flow of Securities. That, it was an independent transaction. That, Dhyan Investments had to buy Canpremium of the f.v. of Rs. 20 crores from the market in order to honour its commitments to Canfina. That, what Dhyan Investments gave to Canfina was not what came to Dhyan Investments as a result of the alleged circuitous flow but, it was because HPD failed to deliver the Canpremium. Hence, purchase and delivery of Canpremium of Rs. 20 crores to the petitioners were independent transactions. Further, reliance was placed on SOS Ledger to show that on 13-5-1992, Canfina had no security with it. That the balance in the Ledger was nil . Therefore, the entry in the SOS Ledger indicated end of the circuitous flow on 13-5-1992 because, Canfina had no scrips with them and, whatever they had, were sold and it is for this reason that in the SOS Ledger, the book balance is zero. Mr. Amin further contended that there was no merit in the allegation of Canfina that the security which went out on 13-5-1992 came back on 15-5-1992 because the transactions of 13-5-1992 were BR transactions where .....

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..... ded that the evidence on record - Exhibit-A and Exhibit-A1 being the accounts of Dhyan Investments in Syndicate Bank indicated the volume of business of Dhyan Investments. That, the said Exhibits also show the commitments made by Dhyan Investments in May, 1992. That, it had an inflow of Rs. 340 crores even excluding Rs. 62.50 crores. In this connection, reliance was placed on chart being chart Y-9. Hence, it was contended that there is no evidence to show lack of funds with Dhyan Investments. That, in any event, the said chart indicated the capacity of Dhyan Investments to enter into the suit transactions. That, there is no law which says that an investor must have in his pocket ready cash of Rs. 62 crores before he buys the scrips or sells the same. That, even the capacity to raise the funds would suffice. That, it would be unfair to rely upon the above circumstance of lack of funds without pleading or calling upon Dhyan Investments to admit the said fact. That, it would violate the rules of natural justice if reliance is placed on such circumstance which has never been pleaded. That, there was nothing abnormal in Dhyan Investments paying Rs. 61.8125 crores to HPD merely on the as .....

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..... d mentioned in the pleadings. That, although fraud had been pleaded in paras 15 and 16 of the petition, there is no plea that Dhyan Investments did not possess funds or that Rs. 62.50 crores were parted with or without giving delivery. Hence, these two facts cannot be relied upon by the petitioners. It was contended that the only plea alleging fraud is based on difference in rates. Moreover, the events, which have taken place after 15-5-1992, are irrelevant. They have not been pleaded. That, there is no issue that Dhyan Investments paid Rs. 61.8125 crores to HPD after getting Rs. 62.50 crores from Canfina. That, in any event, Dhyan Investments had delivered the scrips to Canfina in July,1992 and thereby Dhyan Investments had performed its obligations. That, the petitioners had not relied upon non delivery of the scrips on 15-5-1992 because it would involve PW-1, PW-2 and Omprakash for giving or parting with Rs. 62.50 crores without receiving delivery. That, the petitioners have chosen to restrict their case of conspiracy only to the question of deals being struck at off market rates between 13-5-1992 and 15-5-1992 and, therefore, it was argued that the Court should not take into ac .....

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..... (30) contains all the entries which are proved, the burden of Dhyan Investments under issue No. 12B stands discharged. It was contended that in para 10 of the petition, numerous circumstances are mentioned to constitute conspiracy and if the Court comes to the conclusion that those circumstances have not been proved and assuming for the sake of argument that only one circumstance is proved, viz., receipt of Rs. 21 crores by Dhyan Investments from HPD on 15-5-1992, conspiracy still is not proved because this circumstance of receipt of Rs. 21 crores from HPD is directed to the circuitous flow of securities and if that circuitous flow is not proved then mere payment of Rs. 21 crores by HPD to Dhyan Investments will not prove the conspiracy. Hence, issue No. 12A proceeds from the assumption that Canfina has proved the circuitous flow as alleged in para 10 of the petition. Further, it was contended that PW-1, in his evidence at pages 421 and 422, has admitted that Rs. 21 crores has not come out of Rs. 61.8125 crores. It was next contended on the basis of Exhibit-R3(30), which was HPD s account with Dhyan Investments, that the various entries therein indicated that there were large numbe .....

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..... ns referred to above, which are probabilities, which rule out inference of conspiracy. Accordingly, he contended that there was no need for Canfina to allege conspiracy on the basis of all the four or five deals because the evidence shows that there was loss on the every first leg of 13-5-1992 whereas, there is no loss in the transactions of 15-5-1992. He accordingly, contended that, in the circumstances, the case of the petitioners that conspiracy was hatched to give the benefit to Dhyan Investments to the extent of Rs. 21 crores does not stand proved. That, there was no evidence to prove meeting of minds. That, merely because Dhyan Investments received the benefit of approximately Rs. 68 lakhs on 25 paise margin does not prove conspiracy. He next contended that the present petition is based on TORT. That, in the action based on TORT, Canfina had to prove the losses suffered by it. He contended that, in the present case, the funds were not of Canfina. That, the funds belonged to PMS clients of Canfina. That, even in the case of Ballarpur, the evidence shows that Canfina bought the scrips on 15-5-1992 from Dhyan Investments for a part of the consideration which came from Ballarpur. .....

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..... rder to ascertain as to whether Canfina had suffered any loss, one has to see the book balance at the end of the specified period because, it is the book balance which decides the profit/loss position. It was contended that chart Y-13 shows that the book balance was zero. That the allocations do not depend on the physicals being received. That the zero balance shows that the petitioners did not incur any loss. According to the learned counsel page 6 of chart Y-13 shows that there was no loss in the transaction of 13-5-1992. That page 7 of chart Y-13 shows that there was no profit, no loss in the transactions of 15-5-1992. That, in any event, it was contended that the full accounts have not come before the Court. That, if full accounts would have come, the Court would have been assisted in ascertaining whether Canfina has, in fact, suffered any loss, as alleged. It was contended that since the accounts have not been produced, the Court should draw an adverse inference against Canfina. That, in any event, it was urged that if there was a loss, it was only on account of the transactions of 13-5-1992 and not on account of the transactions of 15-5-1992 because the transactions of 15-5-1 .....

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..... at, there was no evidence as to who entered into the suit deals. That, assuming for the sake of argument that there was conspiracy, there is no circumstance connecting M.K. Ashok Kumar to the said conspiracy. Since, the case of the petitioners is disproved by petitioners own evidence, M.K. Ashok Kumar was not guilty bound to step into the witness box. Mr. Thakkar conceded that respondent No. 4 has not led evidence to show that the suit transactions were connected with the sale of 9 per cent Tax-Free Bonds in January/February, 1992, as alleged by respondent Nos. 4 and 5. He submitted that respondent No. 4, as a dismissed employee, had no evidence to show reversal for sale of Tax-Free Bonds to Citibank. Hence, the only result which follows is that the issue for which M.K. Ashok Kumar had the burden to prove, stands not proved. That, Canfina has failed to lead evidence to show why M.K. Ashok Kumar was in Bombay in May 1992. He contended that if M.K. Ashok Kumar came to Bombay under instructions of J.V. Shetty, he was not responsible for entering into the suit transactions. That, petitioners have failed to summon J.V. Shetty and M.V. Kamath despite the order passed by Variava, J. [as h .....

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..... o show that Ashokkumar Kini was not M.K. Ashok Kumar whose name finds place in Exhibit-O. That, copy of Exhibit-O was sent by HPD to Canfina. Therefore, Canfina was aware of the contents of Exhibit-O. That, no reason has been given as to why Ashokkumar Kini - Executive Vice President of Canfina has not been examined. That, merely because Ashok Kumar was in Bombay, as Chief Dealer to liquidate the outstanding BRs, would not make him a party to the conspiracy even if he had knowledge about the suit transactions. It was contended that the instructions given by J.V. Shetty in his letter dated 7-5-1992 came into effect with immediate effect. That, the said letter was placed before the board of directors on 11-6-1992 for information and not for approval and, therefore, there is no merit in the contention of Canfina that the instructions of J.V. Shetty were only suggestions. According to the learned counsel, J.V. Shetty was the non-executive Chairman of Canfina as he was the Chairman of Canara Bank and, therefore, he had the authority to give instructions and that his instructions were not required to be placed before the board of directors for approval. That, they came into force on 7-5- .....

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..... old by Canfina to Citibank. That, there is no reversal of the said transaction. That, the said transaction remained outstanding and, therefore, the suit transactions came to be entered into. That, Canfina failed to examine any officers to show that the bonds have not come back from Citibank. That, although the bonds were under reversals, they have not come back to Canfina. Therefore, according to the learned counsel, respondent No. 5 has discharged the burden of proving that the suit contracts were arrived at to compensate Citibank. Accordingly, it was contended that issue No. 3 stood proved. She further contended that although, the cause of action arose on 13-5-1992 the petition was filed only on the last date of limitation in 1995. That, although respondent No. 4 was suspended in June, 1992 and although Canfina was aware of the irregularities in the suit transactions and although A.P. Rao, the then Managing Director of Canfina was dismissed, still no action was taken to file the suit earlier in point of time. That, the suit is filed only because the RBI had started investigations into the working of Canfina. That, no efforts were made to recover the amounts from the Custodian und .....

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..... .V. Shetty who had entered into the deals. She contended further that at page 433 of the evidence, PW-1 has admitted that signing of the cost memo was a part of work of execution and, therefore, when S. Mohan signed the cost memo [Exhibit-D] on 13-5-1992, he was only doing the work of execution. That, he did not carry out the work of striking the deals. Hence, on 13-5-1992, S. Mohan had only done the work of executing the deals. That, he had signed the cost memo at the instance of J.V. Shetty. It was next contended that there was nothing wrong in respondent No. 5 collecting the cheque from PW-2 on 15-5-1992 because, that was also a part of work of execution. She contended that there is nothing to connect respondent No. 5 to the conspiracy alleged. That, several officers were aware of the suit transactions. She next contended that, in any event, vide Note dated 26-8-1992 Exhibit-R3 (35)], the Board ratified the signing of the cheque on 15-5-1992 by PW-2. That, Canfina had received the benefit of the contract of 15-5-1992 and having ratified the contract of 15-5-1992, the transactions of 13-5-1992 also stood ratified impliedly. That, in any event, Canfina was estopped from filing the .....

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..... l, ratification of the acts performed by PW-2 on 15-5-1992 by the board of directors vide Exhibit-R3 (35) also constituted ratification of the transactions of 13-5-1992. That, number of officers were aware of the cheque being drawn for Rs. 62.50 crores. That, there was drawing of IBAs which also indicated that several officers were aware of the suit transactions. That, even Exhibit-R3 (31) indicated that Narayan Rao, who had signed Exhibit-R3 (31) being Office Note dated 24-12-1991 was fully aware of the transactions dated 20-12-1991, 13-5-1992 and 15-5-1992 and, therefore, he was also an invitee in the Board Meeting dated 26-8-1992. Hence, numerous officers have taken part in the ratification of the suit transactions of 15-5-1992 and, yet, none of the officers have come to depose on behalf of Canfina. She contended that the entire evidence indicates that the suit transactions were entered into by J.V. Shetty and his colleagues and, in order to shield J.V. Shetty, Canfina has not summoned Ashokkumar Kini, Narayan Rao, J.V. Shetty and M.V. Kamath as also K.N. Kamath. The learned counsel for respondent No. 5 further contended that even the voucher preceding the cheque for Rs. 62.50 c .....

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..... e probabilities suggested by respondent No. 3 particularly because there was no direct evidence to link respondent Nos. 4 and 5 to the conspiracy. That, in the circumstances, whether the suit transactions were entered into by respondent No. 4 and/or respondent No. 5 or whether they were entered into by J.V. Shetty or M.V. Kamath is the question which could only be decided on the basis of probabilities. That, the entire effort made was to show that the suit transactions could have been entered into by J.V. Shetty and/or M.V. Kamath and, it is for this reason that they have not been brought before the Court. That the letter dated 7-5-1992 [Exhibit-R3 (10)] was placed before the board on 11-6-1992 when J.V. Shetty was present. [ see Exhibit-R2 (6)]. That, the letter was perused by the Board. That, the board did not question the authority of J.V. Shetty to withdraw the powers of the Chief Dealer with effect from 7-5-1992. Therefore, respondent No. 4 nor respondent No. 5 had any authority to strike the deal. That, not a single transaction has been brought to the notice of the Court as of any date after 7-5-1992 of having been entered into by respondent No. 4 or respondent No. 5. That, t .....

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..... urt is asked to draw an inference regarding the existence of conspiracy. At the outset, the plea of the petitioners, briefly, may be noted. It is their case that the conspiracy in the present case was in the deals being struck at off market rates so as to cause loss to the petitioners of Rs. 22.1250 crores. As stated above, the existence of the four contracts and the rates are not in dispute. The only narrow dispute raised by the respondents is that these four contracts are not interconnected. That, they were independent contracts. The evidence shows that the market price was Rs. 20 and Rs. 30 per unit when the contracts were entered into. Now, what do the four contracts show? They show, firstly, that the scrips which were sold on 13-5-1992 by Canfina to Citibank were repurchased on 15-5-1992. That, by virtue of the two out of four deals being under priced at Rs. 14 and Rs. 16.50 per unit, Canfina suffered a loss to the tune of Rs. 22.1250 crores. That, this loss took place on the basis of the number of units repurchased by Canfina on 15-5-1992, viz., 2 crore units of Canpremium of the f.v. of Rs. 20 crores and 75 Lakhs units of Candoubles of the f.v. of Rs. 7.50 crores at the abov .....

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..... 92. This fact is corroborated by the Bhav Copies Exhibit-R3 (4) (Colly.) as also [Exhibit-R3 (3) and Exhibit-R3 (8)]. That, the sale of the two scrips by HPD to Dhyan Investments and by Dhyan Investment back to the Canfina at market price indicates that parties had the knowledge of the market price; that when it came to sale of scrips by them, it was at market price but when it was the question of buying, it was at a depressed price. This point is elaborated subsequently when the role of each of said respondents is discussed. At this stage, suffice to say, that two deals were struck at below market price and two deals were at market price, although the market price was constant at above rates on 13-5-1992 and 15-5-1992 resulting in loss of Rs. 22.1250 crores which amount represents share of profits to Citibank, HPD and Dhyan Investments aggregating also to Rs. 22.1250 crores. This cannot be a matter of co-incidence. It is not a matter of loss being suffered by the petitioners on account of market fluctuations. It is a loss to the petitioners caused on account of artificial structuring of rates when the market price was constant between 13-5-1992 and 15-5-1992. The only dispute rais .....

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..... ught the two scrips on 15-5-1992 from Citibank. Under Exhibit-O read with Exhibit-JJ (Colly.) being Misc. Petition No. 46 of 1995 as well as in the reply filed by Dhyan Investments in this petition, it is clear that HPD had also assured Dhyan Investments that they were not required to make delivery of the two scrips to Canfina. That, the delivery would be made directly by HPD to Canfina. On this assurance, Dhyan Investments also acted. Exhibit-O and Exhibit-JJ (Colly.). Therefore, show clearly that HPD had a contract with Citibank before he entered into the contract with Dhyan Investments on 15-5-1992. That, Dhyan Investments was assured by HPD that Canfina was the ready buyer who would buy the two scrips at the market rates. It is only on that assurance that Dhyan Investments purchased the two scrips from HPD. It is indicated by the rates mentioned in Exhibit-O. The purpose of the assurance is three-fold. Firstly, that Canfina was the ultimate buyer of the scrips at the market rates and that Dhyan Investments had not to deliver the scrips to Canfina and lastly, that monies would first come from Canfina. It is for this reason that by Exhibit-O, HPD calls upon Dhyan Investments to m .....

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..... t the above conclusions. It was argued for the petitioners that the above accounts show that neither HPD nor Dhyan Investments made any investments from their own funds. That, respondent No. 3 paid Rs. 61.8125 crores to HPD only from Rs. 62.50 crores paid by the petitioners to respondent No. 3. That HPD paid Rs. 21 crores only out of Rs. 61.8125 crores. That, but for Rs. 62.50 crores, no payment would have come to HPD or respondent No. 3. In reply, it was argued by respondent No. 3 that respondent No. 3 had business dealings with HPD before 15-5-1992. That, respondent No. 3 received Rs. 21 crores for sale of TISCO shares. It is argued on behalf of Dhyan Investments that they had sold TISCO shares to HPD for which HPD had given them a cheque for Rs. 27.97 crores on 14-5-1992. This cheque bounced on 14-5-1992, which is evidenced by the debit entry in Exhibit-R3 (30) (Colly.). However, Exhibit-R3(30) (Colly.) shows that on 15-5-1992, however, HPD received Rs. 61.8125 crores from Dhyan Investments. Further, the accounts of HPD in Andhra Bank [Exhibit-C] show that after receiving Rs. 61.8125 crores on 15-5-1992, HPD pays Rs. 21 crores to Dhyan Investments. It is this Rs. 21 crores which .....

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..... entry would first come on the debit side and it would precede Rs. 62.50 crores on the credit side. However, Exhibit-A1 shows that Rs. 62.50 crores was first credited in the account. The said Exhibit shows at page 2 that Rs. 62.50 crores was first paid by Canfina to Dhyan Investments. This amount was credited and, thereafter, Rs. 61.8125 crores have been transferred and debited to the account. In other words, in normal course of sequence, Rs. 61.8125 crores should have been first debited and Rs. 62.50 crores should have been credited thereafter whereas, in this case, the sequence of entries shows that Dhyan Investments paid Rs. 61.8125 crores only from Rs. 62.50 crores received from Canfina. This point clearly proves that without making any investment from the funds received from Canfina of Rs. 62.50 crores Dhyan Investments paid Rs. 61.8125 crores to HPD. The evidence in Ex. c further proves that HPD also discharged his liability only from Rs. 61.8125 crores. Therefore, neither Dhyan Investments nor HPD exposed their own funds to risk. Further, Exhibit-R3(30) (Colly.) which is the account of HPD in the books of Dhyan Investments, shows two things that the debit balance on 14-5-1992 .....

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..... ter, it had been vehemently urged on behalf of Citibank and Dhyan Investments that the suit contracts were in the normal course of business. In this connection, Dhyan Investments has submitted various Charts based on evidence particularly Chart Y-1 to Chart Y-8 [which are annexed for the sake of convenience to this judgment]. Y-9 is not accurate. I have relied on [Exhibits-A1, C and R3(30) (Colly.)]. It has been argued that buying and selling of scrips at off market rates in numerous transactions in the past show that scrips were sold at depressed price and purchased at higher price. That, some times they were purchased at a comparatively lower price and sold at a higher price. That, merely because there is a loss in the present case, would not indicate conspiracy. That, the said transactions were the routine transactions. It was also contended that, in market, even the capacity of Dhyan Investments to enter into transactions was sufficient and that it was not necessary for Dhyan Investments to hold Rs. 61.8125 crores on a given date and, therefore, merely because the accounts indicate that Dhyan Investments did not possess Rs. 61.8125 crores de hors Rs. 62.50 crores received from .....

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..... ngement was arrived at to cause loss to Canfina but their only contention is that it was for different purposes viz. to compensate Citibank and not to enrich Dhyan Investments. Although, burden of proof in that connection was casted on the dealers vide issue No. 3, they abandoned the issue by not leading evidence. Hence, on the basis of above evidence, I conclude that there was a conspiratorial agreement between the above parties to cause loss to Canfina to the extent of Rs. 22.1250 crores. AA. Summary of the findings on conspiracy by way of striking of the deals at off market rates. Sale of the two scrips by Citibank to HPD at the rate of Rs. 14.10 and Rs. 16.60 resulted in profit to Citibank. Rs. 27,50,000 Sale by HPD to Dhyan Investments at the rate of Rs. 19.75 and Rs. 29.75 resulted in profit to HPD of Rs. 21,16,25,000 Sale by Dhyan Investments to Canfina at the rate of Rs. 20 and Rs. 30 resulted in profit to Dhyan Investments Rs. 68,75,000 Grant total Rs. 22,12,50,000 This is the exact loss caused to Canfina. The above finding shows that, at the cost of the petitioners, each of the parties viz. HPD, Citibank and Dhyan Investments have received their respective profits of Rs. .....

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..... entre. He was only required to look after the work of execution of the deals entered into by the dealers in Bangalore. In his evidence, PW-1 has deposed that he used to receive instructions from the dealers stationed at Bangalore. That, the dealers were of Canfina. That, the names of the dealers of Canfina were M.K. Ashok Kumar (respondent No. 4) and S. Mohan (respondent No. 5). In his evidence, PW-1 has deposed regarding the nature of his work in Bombay. He has stated that the deals were finalised by the dealers at Bangalore. That, in cases of sale of scrips, he used to give the cost memos along with the BRs or physicals as per the instructions from the dealers. That, he also used to receive cheques on delivery of cost memos and BRs or physicals. That, in cases of purchase of scrips by Canfina, he used to receive (sale) cost memos and BRs or physicals and he used to issue cheques on behalf of Canfina. That, he was assisted by Omprakash - an employee of Canfina - in entering into the aforestated deals in the various registers maintained by the office in Bombay viz. the Transaction Register, Security Ledger (Movement), BR Purchase Register, BR Sale Register and Security Ledger. He h .....

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..... in his evidence that he too was working with Canara Bank, Funds Investment Section in Bombay in the office at Verma Chambers. That, in May, 1992 he was working in the Securities Department. That, he was authorised to issue cheques. That, in respect of Canfina s security transactions, the Funds Investments Section of Canara Bank, Bombay used to make payments/receive cheques. That, PW-1 was duly authorised by Canfina to execute the deals on behalf of Canfina although, PW-1 was an employee of Canara Bank [Funds Investments Section]. That, whenever Canfina used to purchase the scrips, the cheques were drawn by Canara Bank and not by Canfina. That, the said cheques were drawn pursuant to the instructions given by the dealers. That, Funds Investment Section of Canara Bank, Bombay used to receive IBAs from Canara Bank, Cunningham Road Branch, Bangalore. That, Canfina had an account with Canara Bank, Cunningham Road Branch, Bangalore. That, in respect of sale of scrips, Funds Investments Section of Canara Bank, Bombay used to receive cheques in the name of Canara Bank and the proceeds thereof were credited to Canfina s account with Canara Bank, Cunningham Road Branch, Bangalore by way of I .....

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..... the transactions of 13-5-1992 and 15-5-1992 were done by the dealers. That, it was S. Mohan who instructed PW-2 to prepare the cheque for Rs. 62.50 crores. That, it was S. Mohan who had appraised PW-2 about the transactions of purchase of the two scrips on 15-5-1992 from Dhyan Investments. That, no delivery was made of the physicals on 15-5-1992 by Dhyan Investments to Canfina. The evidence of PW-2 also shows that S. Mohan had told PW-2 that physicals would be delivered by Dhyan Investments in due course. The evidence of PW-2 also shows that when PW-1 resumed his duties on the next working day, he has also appraised PW-1 about the deal of 15-5-1992. Hence, the evidence of PW-2 also goes in line with the evidence of PW-1. It clearly establishes the fact that not only PW-2 was asked to draw the cheque for Rs. 62.50 crores by S.Mohan on 15-5-1992 in favour of bankers of Dhyan Investments but, it also further establishes that S. Mohan collected the cheque of Rs. 62.50 crores on 15-5-1992 from PW-2 in Bombay. It may be mentioned that no good reasons could be given by the learned counsel appearing on behalf of S. Mohan on the above circumstances in the course of her arguments. There is o .....

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..... l was arrived at is known only to the dealers. The basis was not known to the persons who kept the custody of records so also the basis was not known to the persons who entered the deals in the various Registers. Hence, the evidence of PW-1 and PW-2 clearly establish that both the dealers were in Bombay on 13-5-1992 and 15-5-1992. That, S. Mohan signed the (sale) cost memos [Exhibits-D and Q] on 13-5-1992. That, S. Mohan received the cheque of Rs. 62.50 crores [Exhibit-I] on 15-5-1992 from PW-2 in Bombay. That, the evidence of PW-1 and PW-2 clearly show segregation of duties between various officers and that the basis for arriving at the rate of sale or purchase of the securities was only known to the dealers and lastly, the evidence of PW-2 proves that he was only instructed by S. Mohan to sign the cheque and handover the same on 15-5-1992. Hence, S. Mohan has played a key role in the conspiracy. On the other hand, it is interesting to note the replies filed by respondent Nos. 4 and 5 to the Petition. They are identical. In para 1( a ) to the Petition, it has been alleged that the deals have been entered into by the dealers on 13-5-1992 and 15-5-1992. This has not been denied. Sec .....

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..... ow of securities to deprive Canfina and cause loss to Canfina to the extent of Rs. 22.1250 crores. Hence, the above circumstance clearly proves the link between the Respondent No. 5 and the conspiracy. It is correct to say that in the order dated 4-12-1996 passed by Variava, J. [as he then was] in Misc. Application No. 236 of 1996 the learned Judge has made a strong observation opining that J.V. Shetty should be made as a party Respondent. That, it is on the context that issue No. 3 being proved by the dealers. If the dealers give up issue No. 3, then the question of J.V. Shetty coming into the witness box either as a witness or as a party Respondent does not arise. Lastly, there is no evidence to show that Canfina had no funds to pay Citibank Rs. 22.1250 crores and, therefore, they entered into the suit transaction on 13-5-1992 because on 15-5-1992 Canfina has given Rs. 62.50 crores to Dhyan Investments, which shows falsity in the arguments of the dealers. Further, Citibank in its reply has categorically deposed that their transactions of 13-5-1992 with Canfina were independent transactions. In other words, Citibank has positively averred that their transactions with Canfina were .....

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..... g to Dhyan Investments, it entered into the transactions of purchase with HPD on 15-5-1992 when HPD assured Dhyan Investments that he had a ready buyer of the two scrips in Canfina. Exhibit-O evidences that assurance. Further, according to Dhyan Investments, HPD also assured Dhyan Investments that delivery of the two scrips will be made by him directly to Canfina. This is also evidenced by Exhibit-O. Now both Dhyan Investments and HPD claim that their inter se transactions to purchase the scrips were independent transactions. That on 15-5-1992, HPD sold the two scrips to Dhyan Investments for Rs. 61.8125 crores. If it was an independent transaction, one fails to appreciate why the name of Ashok Kumar of Canfina finds place in Exhibit-O. It clearly shows that there was a tripartite agreement between Ashok Kumar of Canfina, Dhyan Investments and HPD on 15-5-1992. But for the assurance of Ashok Kumar of Canfina, it was not possible for HPD to assure Dhyan Investments that he would make the delivery directly to Canfina. That, Dhyan Investments was not required to deliver the scrips, because HPD had given an assurance that he would give the delivery directly to Canfina. Therefore, Exhib .....

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..... e physicals given by HPD to Dhyan Investments on 15-5-1992 could not have been given but for HPD having, in his pocket, contract with Citibank. HPD has admitted that he bought the two scrips from Citibank on 15-5-1992 and he has sold the two scrips to Dhyan Investments. That, by Exhibit-O, HPD has further stated that by Exhibit-JJ(Colly.), Dhyan Investments admitted that they were assured by HPD that he would make delivery directly to Canfina on receiving Rs. 61.8125 crores. Similarly, Exhibit-FF is the Contract Note signed by HPD to Respondent No. 3. Further, under Exhibit-JJ(Colly.), Dhyan Investments agreed to purchase the two scrips from HPD because of the above assurance regarding delivery. It also shows that Dhyan Investments was also aware that Canfina was to buy the two scrips at the market rates because, otherwise, there was no point in HPD assuring Dhyan Investments that delivery would be made to Canfina. If Dhyan Investments was buying the scrips under an independent transaction, as claimed from HPD, then Dhyan Investments would insist on receipt of the physicals because they were parting with huge amount of Rs. 61.8125 crores. But because, ultimately, the purchase was t .....

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..... ibit-H) to PW-1 and he collects from PW-1 the two BRs (Exhibit-E and Exhibit-G) as also the (Sale) cost memos dated 13-5-1992 (Exhibit-D and Exhibit-Q). Hence, HPD took the BRs on 13-5-1992. In fact, the entire arrangement of all the four contracts has been deviced by HPD. Further, HPD s sale of the two scrips to Dhyan Investments at market rate shows that HPD was aware of the market rate. The position is very clear. HPD collects the two scrips from Canfina on 13-5-1992. The said two scrips are undervalued even in the first transaction between Canfina and Citibank. Thereafter, HPD himself purchases a part of the total scrips, once again, at a depressed price as compared to the market price. HPD had no monies to buy the scrips at the market price (see Exhibit-C - account with his bank). HPD had a liability to Dhyan Investments as stated hereinafter. Therefore, HPD does not buy the scrips at the market price. He buys it at the depressed price and, thereafter, sells it at a market price to Dhyan Investments and in the process makes profit of Rs. 21.1625 crores and accordingly discharges his liability partially to Dhyan Investments. Therefore, it is clear that the entire device was arr .....

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..... to Dhyan Investments and Dhayn Investments, in turn, delivered the Canpremium units to Canfina [ see Exhibit-K(Colly.)]. Hence, HPD and Citibank were required to lead evidence. They have failed to do so. There is one more reason why evidence was required from Citibank. Respondent No. 2 has alleged that cheque for Rs. 26.15 crores bounced for want of funds. However, they admit that they had entered into the contract with HPD. HPD also admits of having entered into the contract. This contract was to purchase of two scrips for Rs. 40.65 crores ( see Exhibit-P). Now, if according to Citibank, part of the consideration failed then the burden was on Citibank to prove as to how they cancelled the contract. Citibank is a bank. When they received cheque for Rs. 40.65 crores, they must have made the necessary entries in their accounts. No evidence has been led. Further, the evidence of Mr. Shiva, [Exhibit KK (Colly.)] indicates how, and in what manner, Citibank used to cancel the contract for failure of consideration. Lastly, in any event, Citibank received the cheque for Rs. 14.50 crores on 18-5-1992 and they delivered Candoubles only on 11-7-1992. One fails to understand under what head o .....

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..... t is only after receiving Rs. 20 crores from Dhyan Investments on 10-7-1992 and Rs. 14.50 crores from HPD that Citibank finally parted with the two scrips in favour of Canfina on 11-7-1992 and 15-7-1992. Further, Citibank claims to have sold Canpremium to Dhyan Investments at a loss of Rs. 8 crores. In their affidavit in reply, they say that they sold Canpremium units at par at the rate of Rs. 10 instead of Rs. 14 and, in the process, they lost Rs. 8 crores. No explanation has been given as to why Citibank should suffer a loss of Rs. 8 crores. This is particularly important because before this Court, in Chamber Summons No. 3 of 1999, the learned counsel for Citibank has stated that the transaction of 18-5-1992 was recorded on 11-7-1992. I may point out that in security transactions, there are two important dates, one, the date on which the deal is struck, the other, when the deal is settled. Even from the date on which the deal is settled, one can ascertain the date on which the deal was struck because the contract is essentially performed on the given date by way of settlement. Even the account of HPD with Citibank has not been produced. Lastly, it may be mentioned that the above .....

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..... ds of Citibank is Rs. 40.375 crores. Therefore, by entering into the contract, Citibank had achieved two-fold purpose viz. it wiped out its liability of Rs. 21 crores. Secondly, it recovered the cost incurred by it (Citibank) for purchasing the aforestated quantity of scrips from Canfina. This also shows as to why Citibank has kept back with it 80 lakhs Canpremium units because if Citibank would have sold 2.80 crores Canpremium units and 75 lakhs Candouble units to HPD then the cost of those units in the hands of Citibank would have been Rs. 51.57 crores whereas, on sale, Citibank would have earned only Rs. 51.93 crores at the rate of Rs. 14.10 and Rs. 16.60 which would mean that Citibank s liability of Rs. 21 crores to HPD would remain outstanding. The point, therefore, which is important to note is that this circumstance proves three things. That, the above contract between Citibank and HPD took place on 15-5-1992. Secondly, it was arrived at on the basis of artificially structured rates in order to discharge Citibank s liability to HPD of Rs. 21 crores. Thirdly, it explains why 80 lakhs Canpremium units were withheld by Citibank. All the three points also show that Citibank and .....

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..... That, all the contracts are interconnected. That, they were arrived at artificially structured rates in order to cause a cash outflow of Rs. 22.1250 crores from Canfina where by each of the parties viz. Dhyan Investments, HPD and Citibank not only made profits but they also discharged their respective liabilities. E. On connection/link of Dhyan Investments - Respondent No. 3 to the conspiracy as evidenced by circuitous flow of securities between 13-5-1992 and 15-5-1992 at off market rates. 30. At the outset, for the sake of convenience, it may be mentioned that while discussing the question of formation of conspiracy hereinabove and while discussing the point regarding connection of the dealers and HPD and Citibank, I have already given findings which indicate the flow of funds of Rs. 62.50 crores from Canfina to Dhyan Investments; Rs. 61.8125 crores from Dhyan Investments to HDP and of Rs. 21 crores from HPD to Dhyan Investments. Therefore, it is not necessary to discuss that evidence again. However, briefly, it may be reiterated that the evidence on record including the accounts show that Dhyan Investments did not possess funds to the extent of Rs. 61.8125 crores on 15-5-1992. Th .....

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..... over cheque of Rs. 62.50 crores to Respondent No. 5 on 15-5-1992 and, further, this payment was made to Dhyan Investments against a simple letter dated 15-5-1992 - Exhibit-M. It is not the cost memo. PW-1, in his evidence, has stated that whenever Canfina bought scrips they would issue cheques only against delivery of BR/SGL/Physicals. He has also deposed that (sale) cost memo would also be taken by Canfina from the selling party Now, the cost memo issued by the selling party normally indicates a direction to issue bankers cheque against delivery by Bonds/SGL/BR. Further, the cost memo is also required to mention the contract number and date. It is also required to mention the amount of brokerage paid ( see Exhibit-D). Now, in the present case, none of these particulars find place in Exhibit-M. It is merely a sheet of paper signed by an authorised signatory of Dhyan Investments giving description of scrips. Hence, there is no cost memo issued by Dhyan Investments. Dhyan Investments is not a banking company. Further, there is no (sale) cost memo from HPD to Dhyan Investments particularly when HPD had sold the above two scrips to Dhyan Investments on 15-5-1992 for Rs. 61.8125 crores .....

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..... s of the same transaction, were at the market rates and thereby causing loss to Canfina of Rs. 22.1250 crores. Hence, I conclude that the above transaction as a whole was an artificial transaction. Hence, I hold that the transaction was artificially structured so as to cause loss to Canfina. Accordingly, the conspiracy of arriving at transaction at off market rates to cause loss to Canfina stands proved. Before concluding this topic one point remains to be discussed. It has been vehemently urged on behalf of Dhyan Investments that several officers in the Registered Office were aware of the suit transactions. That these officers should have deposed on behalf of Canfina. It was contended that on 11-7-1992, PW-1 discharged Dhyan Investments costs memo under instructions of Managing Director Shri K.N. Kamath [ see Exhibit-K (Colly.)]. As stated hereinabove, the internal control procedure of Canfina was based on segregation of duties between persons responsible for entering into deals, persons having custody of investments and persons responsible for recording transactions in the books of account and the other records. As stated above, even in Note No. 847 Exhibit-R2 (6) which provided .....

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..... etails of transactions by Canfina in Candoubles at off market rates [ see Chart No. Y-5 annexed to this Judgment]. In the alternative, it was further contended that assuming for the sake of argument that transaction of 13-5-1992 was not a reversal, it was possible that the suit transaction was by way of liquidation of BRs in May 1992. It was urged that the outstanding BRs issued on 20-12-1991 was liquidated and discharged on 13-5-1992. Hence, it was contended that BRs of 20-12-1991 bearing Nos. 5821 and 5823 [Exhibits-E and G] were outstanding and that they were subsequently discharged on 13-5-1992. In this connection, reliance was placed on Exhibit-R2 (6) being the Board Note bearing No. 847 dated 11-6-1992. Reliance was also placed on the evidence of Mr. Vernekar PW-1 at pages 250 and 251 and at pages 88 and 89 of the Notes of Evidence. Similarly, it was contended that there are several entries in the Transaction Register indicating payments made by HPD to Canfina, although there were no transactions on principle to principle basis in the Register. Reliance was placed on Chart bearing No. Y-6 in support of the above contention [ see Chart No. Y-6 annexed to this Judgment]. On the .....

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..... ameter of a market price is not applied principally because the transaction is entered into to create finance. A funding transaction of the above nature essentially consists of two legs. A broad examination of Chart No. Y-3 shows that both the deals were at off market rates. Now, when we say off market rates, it could be the deals were struck at below the market price; they could be above the market price; or they could be at the market price. In a funding transaction of the above nature, therefore, the yardstick of market price does not apply. On the other hand, in the case of a suit transaction, transactions in the same scrips on the same date (when the market price is constant) have been at different rates. They are at different rates even when there is no price fluctuation [Exhibit-R3 (33)]. On 15-5-1992 HPD buys the two scrips from Citibank at Rs. 14.10 and Rs. 16.60 per unit and on the same day, HPD sells them to respondent No. 3 at nearly market price of Rs. 19.75 and Rs. 29.75 when the market price of same scrips was Rs. 20 and Rs. 30. Even HPD s assurance to respondent No. 3 is also based on the above footing. None of the illustrations given in the Charts seek to answer th .....

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..... y. The point which I would like to emphasise in this connection is that only Security Ledger (Movement) is shown to PW-1, and on that basis, certain questions are being asked in cross-examination without there being other relevant entry put to the witness. Hence, such instances cannot be said to be comparable with the suit transactions. Further, in such a case, the question of market price as a comparable yardstick does not come into picture. Moreover, this entry shows that the BR was outstanding between 7-4-1992 and 21-4-1992. That, by delivering the physicals, Canfina has settled its outstanding. Therefore, merely picking out one entry and comparing it with the market rate is totally misleading. Secondly, the point which the Court wants to emphasise is that unlike instances given in the Charts of reversals, in the case of suit transactions, we have a comparable yardstick of a market price of Rs. 20 and Rs. 30 when Canfina repurchases the scrips and as compared to that yardstick, the sale of the two scrips at the depressed price shows conspiracy to cause loss. Such a case is not found in any of the instances given in the Charts. In the suit transaction, Dhyan Investments acted on .....

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..... of the dealers as to why and on what basis the deals were struck including the rates. Now, coming to Chart Y-1 annexed to this Judgment, item Nos. 1 and 4 refer to purchase of Canpremium from Growmore. It is sold on the same day to Growmore [ see Exhibit-R2 (21). It is Security Ledger (Movement)]. This transaction has taken place through Harshad Mehta whose name appears in the Transaction Register. Now the Transaction Register is not put to PW-1 because the name of Harshad Mehta finds place. It does not find place in the Chart. Moreover, there is no material to show the NAV of Canpremium on 30-11-1991. The evidence on record shows that after the deals were struck, the transactions were entered into firstly in the Transaction Register. Further, the Transaction Register shows, however, that what was purchased from Growmore on 5-12-1991 was Canpremium of the f.v. of Rs. 11 crores and not Rs. 2 crores as indicated in Chart Y-1 and it was sold on the same day. There is also a difference in the purchase rate and the rate of sale. They are purchased at the rate of Rs. 109 and sold at the rate of Rs. 100. That, it has resulted in a loss. It is essentially a funding transaction. It is to f .....

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..... the first two legs had been arrived at at an artificial, depressed market price. This aspect is not available in any of the instances given in the Charts. Now, coming to Chart Y-2, it refers to the funding of Canfina. As stated hereinabove, during the scam, there could be large number of transactions of sale and purchase, which, in substance, were funding transactions. They cannot be compared to the transactions involved in the present petition. They have not been challenged on the basis that the deals were entered into on those cases at off market rates. Canfina received funds even from its holding companies as indicated by the entry at serial No. 8 of Chart Y-5 dated 15-6-1992. After the scam became public, Canfina sold certain scrips to its holding company as a rescue operation. The holding company rescued Canfina by purchasing the scrips at off market rates. But, in those cases, we do not have simultaneous application of market rates and off market rates in the same transaction. It is only in the present suit transaction that we find that the scrips are being sold at a very low rate as compared to the market price and it has been purchased at the market price when on both the .....

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..... when the market rate is also Rs. 31. Hence, the examples given in Chart Y-3, on the contrary, support the case of Canfina. Similarly, Chart Y-4 which deals with transactions at contract rates supports the case of Canfina. At page 302 of his evidence, PW-1 has admitted that in cases where the transaction rates go upto four to five decimal points, they indicate the nature of the transactions to be loan transactions because four decimal points would show normally that there is a interest component which is in-built into the rate. Therefore, Chart Y-4 supports what I have already stated in the context of item No. 4 of Chart Y-3 (Colly.) which deals with sale to Indian Rayon and purchase therefrom. Now, coming to Chart Y-5, keeping in mind the above conceptual points which I have discussed, it may be noted that item No. 1 and item No. 4 deal with the transactions which are subject-matter of the Petition. As stated hereinabove, Citibank has positively averred in their Reply that the transaction of 13-5-1992 was an independent transaction. Hence, the two items are kept outside the purview of analysis of the said Chart Y-5. Item No. 2 is an outright sale transaction. On 7-4-1992, the scrip .....

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..... erence was recovered by Canfina from HPD. That, it was possible that the suit transactions were entered into by Canfina in order to compensate HPD. In fact, this case was also put to PW-1 at page 392, to which PW-1 has stated that he did not know as to whether the suit transactions were entered into to compensate Citibank in the manner Canfina used to compensate HPD. I do not find any merit in the said arguments. Firstly, there is nothing to indicate that Canfina used to compensate HPD for the difference. Secondly, in the present case, HPD and Citibank are the party respondents to the Petition. It is not the case of Citibank or HPD that the suit transactions were arrived at to compensate Citibank. The dealers have contended that in January/February, 1992, 9% Tax Free Bonds were sold by Canfina to Citibank with a promise to repurchase after the interest due dates. An issue was framed being Issue No. 3. The dealers have abandoned the said issue. Citibank was a party to the suit transactions of 13-5-1992. They have positively averred that the suit transactions of 13-5-1992 were independent transactions. That, they were stand alone transactions. That, they have no connection with any p .....

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..... hich the four contracts have been entered into on 13-5-1992 and 15-5-1992. Therefore, non-delivery of the scrip is a circumstance to show abnormality of the suit deal and not conspiracy which is proved by difference in rates. In this case, it is further important to note that in cases where scrips were sold, the (sale) cost memo would indicate the mode of delivery and payment ( see Exhibit-D) whereas in case of (sale) cost memo of Dhyan Investments no such particulars are given ( see Exhibit-M). It is just a letter which does not call upon Canfina to pay Rs. 62.50 crores against delivery of BR/Physicals or even the assurance of HPD. We do not have letters of Financial Institutions in cases referred to in Chart Y-10 (III). Hence, those illustrations are not comparable. Now, coming to Chart Y-13, it is based on Exhibit-R3(18) and Exhibit-R3(19) which are SOS Registers. In the present matter, we are concerned with the transactions being entered into at off market rates and simultaneously entering into the transactions at the market rates. The evidence of PW-1 shows that Canfina used to maintain various Registers. After the deal is struck, the first entry is recorded in the Transaction .....

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..... after receiving Rs. 62.50 crores from Canfina, Dhyan Investments paid Rs. 61.8125 crores to HPD which indicates that entire deal was struck without HPD or Dhyan Investments exposing themselves to any financial risk. Therefore, none of the probabilities, suggested by the learned counsel on behalf of Citibank and Dhyan Investments, could be said to be a reasonable probability so as to displace the presumption of innocence in favour of the respondent Nos. 1 to 5 herein. In this connection, it is important to bear in mind the ratio laid down in the judgment of the Supreme Court in the case of S.P. Bhatnagar v. State of Maharashtra 1979 Cr. LJ 566 that in cases where the evidence is of a circumstantial nature, the circumst- ances from which the conclusion of guilt is to be drawn should, in the first instance, be fully established and all the facts should be consistent only with the hypothesis of the guilt of the accused. Again, the circumstances should be of a conclusive nature and they should be such as to exclude every hypothesis except the one proposed to be proved. This is based on the principle that inculpatory facts must be inconsistent with the innocence of the accused and such i .....

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..... ged by Citibank and Dhyan Investments. As stated above, faced with the situation that the market rates of the two scrips on 13-5-1992 and 15-5-1992 were constant at the rate of Rs. 20 and Rs. 30 per unit, it was sought to be argued on behalf of Citibank and Dhyan Investments that the transaction of 15-5-1992 which was arrived at the market price was independent of the transaction of 13-5-1992. That, the first and the fourth leg of the circuitous transactions have no connection with each other. That, the transaction of 13-5-1992 was arrived at off market rates because it was a reversal of the transactions of 20-12-1991. I do not find any merit in the said contention. Firstly, Citibank, which is a party to the contract of 13-5-1992, has positively averred that the transaction of 13-5-1992 was a stand-alone transaction and that it was not connected with any previous transactions. Secondly, even the dealers have alleged that the suit transactions of 13-5-1992 are only connected with the alleged sale of 9% Tax-Free Bonds by Canfina to Citibank in January/February, 1992. They have not alleged any connection of the suit transactions of 13-5-1992 with the transactions of 20-12-1991. Thirdl .....

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..... by Citibank and Dhyan Investments. In any event, Citibank cannot take the above plea in its arguments because in the pleadings, Citibank had positively averred that the transaction of 13-5-1992 is a stand-alone transaction. PW-1 in his evidence has explained the meaning of reversal at pages 206 to 209 and also at page 354. In the said evidence, he has pointed out broadly that reversal implies squaring of transactions. He has pointed out at page 208 that in cases where reversals are based on BR exchanged and such reversals are of same securities, it could be a buy-back or an outright. That, ultimately, it would depend on the terms and conditions of the contract. That without looking at the deal pad, he was not in a position to say as to whether it was outright or ready forward or buy-back. He has further deposed that there could be even the reversal of an outright transaction. He has pointed out that reversal of an outright purchase is an outright sale and vice versa . He has denied that all reversals indicate lending and repayment. At page 354 of his evidence PW-1 had deposed that exchange of BR does not indicate reversal of transaction. At page 417, he has further deposed that in .....

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..... f PW-1, he used to execute the deals struck by the dealers. The evidence on record shows that only PW-1 had the authority to execute the deals after the deals were struck by the dealers. At the same time, PW-2 had the authority to sign cheques on behalf of Canara Bank. He was the employee of Canara Bank. Therefore, on 26-8-1992, only the acts performed by PW-2 in Bombay of signing the cheques were ratified by the Board [ see Exhibit-R3 (35) (Colly.)]. It is important to bear in mind that during the period 14-5-1991 upto 15-5-1992, PW-1 remained absent on different dates numbering 67 days. That in his absence, functions of routine nature were carried out by K.D. Prabhu and PW-2. Reliance was placed on this Resolution. It was contended that vide Exhibit-R3 (35) (Colly.), the striking of the deal on 15-5-1992 stood ratified. It was further urged that with the ratification of the deal of 15-5-1992, there was also automatically a ratification of the deal of 13-5-1992 because the Petitioners have relied upon the circuitous flow of securities and also because the Petitioners have contended that the scrips which were sold on 13-5-1992 were repurchased on 15-5-1992. Hence, it was contended .....

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..... uit was filed by the Plaintiffs as assignees of a bankrupt to recover certain goods of the bankrupt alleged to have been wrongfully converted by the Defendant. The goods for which the suit was filed consisted of the stock-in-trade, furniture and other move-ables upon the premises of the bankrupt. The act of bankruptcy was committed on 2-10-1825. On 4-10-1825, the Defendant, who was a creditor of the bankrupt, after consulting with the Plaintiffs, went to the house of bankrupt, who was absconding, and took possession of the stock-in-trade, furniture and other moveables. He even continued the business of the bankrupt. He continued to do so until 13-11-1825. On15-11-1825, the Commissioner took possession of the permises. They also seized the stock-in-trade which partly consisted of the stock which belonged to the bankrupt. They also seized the stocks which partly belonged to the defendant who had purchased the same during the period when he continued the business of the bankrupt. The goods purchased by the Defendant amounted to 212 pounds which the Defendant has paid out of the monies received by him in the sale of general stock-in-trade. He had kept a daily account of the sale and pu .....

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..... s payment did not represent any balance being paid after giving credit in respect of the goods sold by the Defendant as in the above case. Lastly, the above case does not touch upon transactions like ready forward or buy-back transactions. Hence, the said judgment has no application to the facts of the present case. In the case of Keay v. Fenwick 1876(1) Common Pleas Division pg. 745, the facts were as follows. The Plaintiffs were the ship brokers of a vessel by the name Westminster. They instituted a suit against the Defendants own goods for recovery of 511 pounds being the Balance of the Plaintiffs account with the owners. The main point in dispute was whether the Plaintiffs were entitled to be paid by the Defendants, a sum claimed by the Plaintiffs as commission for the sale of the ship to the Turkish Government. It was found that the ship was, in fact, sold by the Plaintiffs to the Turkish Government for 19000 pounds. That, one of the Defendants in the suit was one Mr. Dale. He was the managing Owner of the ship. The Turkish Government paid the amount. The amount was received by Mr. Dale. Mr. Dale, thereafter, divided the sum amongst the other Defendants and himself. The Plaint .....

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..... ips on 11-7-1992 and 15-7-1992, it constituted ratification of the suit transaction of 13-5-1992. I do not find any merit in the above contention. On 15-5-1992, Canfina parted with Rs. 62.50 crores. It was against letter of Dhyan Investments [Exhibit-M]. Therefore, on 11-7-1992 and 15-7-1992 when the scrips were offered, PW-1 accepted the physicals. That can never constitute ratification of the rates at which the deals were struck. In the present matter, we are concerned with the loss suffered by Canfina on account of artificial rates at which the scrips were sold on 13-5-1992. Mere receipt of delivery on 11-7-1992 and 15-7-1992 cannot amount to ratification of the rates. Hence, there is no merit in any of the above submissions advanced on behalf of Citibank. The other respondents have adopted the arguments of Citibank on ratification. Hence, it is not necessary to once again deal with those arguments. On the contrary, the Note bearing No. 1704 dated 26-12-1996 [Exhibit-R3 (17)] reiterates that the two scrips were sold on 13-5-1992 at below market price and they were purchased back on 15-5-1992 at the market rate resulting in the loss of Rs. 22.1250 crores which compelled Canfina t .....

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..... ter Exhibit-R3 (10) forms part of Note No. 847 [Exhibit-R2 (6) - page 19]. Clause V of the said Note deals with steps proposed by Canfina to safeguard the interest of the Institution in future. Under this caption, it was proposed in the Board Meeting that wide powers delegated to the dealers were reduced with effect from 7-5-1992. That, the power to enter into the transactions upto Rs. 100 crores in a day was given to the Managing Director subject to the condition that all such transactions should be placed before the Chairman/Vice Chairman of Canfina for information on the very next date. That, in cases of transactions above Rs. 100 crores, prior clearance from the Chairman was required to be obtained. Clause V of Exhibit-R2 (6) shows, therefore, that the powers given to the dealers before 7-5-1992 were reduced from 7-5-1992 as above. It was, therefore, contended that M.K. Ashok Kumar could not have entered into the deals after 7-5-1992. Similarly, it was urged that Exhibit-R3 (10) was accepted by the Board of Canfina vide Note No. 847 [Exhibit-R2 (6)]. Further, this Note No. 847 was also placed before the board of directors of Canfina on 11-6-1992 [ see Exhibit-R2 (9) at page 7]. .....

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..... wn on 11-6-1992. In the case of CBI v. M.K. Ashok Kumar 1999 (2) BCR page 771 Variava J. [as he then was] was required to construe Board Note No. 726 dated 30-11-1991 [Exhibit-R2(8)] as it was contended on behalf of S. Mohan that he, as a dealer, never had the authority to enter into the deals. In that matter, he was Accused No. 3. It was submitted by him that he could not have entered into the transaction as he had no such power. That, only M.K. Ashok Kumar had the power to enter into the transactions. That, the Board Note dated 30-11-1991 Exhibit-R2 (8) does not talk of any power to the dealers. However, it was submitted that he [S. Mohan] had the authority to enter into the transactions in units of UTI, public sector bonds/Government of India securities and not in any other securities. This argument was rejected by holding that. S. Mohan was the dealer of Canfina and, therefore, he was authorised to enter into buying and selling of securities [ see para 165 of the judgment]. In this connection, the learned Judge placed, inter alia, reliance on Board Note dated 30-11-1991 [Exhibit-R2 (8)]. After interpreting the said Board Note dated 30-11-1991 [Exhibit-R2 (8)], the learned Judge .....

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..... t in view of Note No. 847 - Exhibit-R2 (6) read with Exhibit-R2 (9), the dealers could not have entered into the deals. The dealers were the persons, who had struck various deals over the telephone with brokers and counter-parties. They were the persons who had knowledge as to why the scrips were bought and sold. They were the persons who had the knowledge as to why the scrips were bought and sold at a given rate. The terms and conditions of the deals were in the exclusive knowledge of the dealers. As stated hereinabove, the segregation of duties during the period of scam was between persons responsible for entering into deal, persons having custody of investments and persons responsible for recording the transactions in books of account. It is for this reason that they came to Bombay in May, 1992. Therefore, I do not find any merit in the contentions advanced on behalf of Respondents that with the coming into force of Exhibit-R3 (10), respondent Nos. 4 and 5 had no role to play. Lastly, it may be mentioned that the presence of J.V. Shetty in the present case was not necessary once the dealers abandoned issue No. 3 as stated above. Therefore, there is no merit in the contention tha .....

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..... s, the Court should draw an adverse inference against Canfina by holding that PMS clients made profits on the PMS transactions. 35. In the light of the above arguments, two points arise for determination. Firstly, whether Petitioners were entitled to seek recovery of loss, if such loss has taken place on PMS clients accounts and not on bank s own account. Secondly, whether respondent Nos. 2 and 3 are right in contending that no loss took place on PMS clients accounts. In order to answer the first point referred to above, it would be relevant to understand the PMS Scheme. Canfina is a subsidiary of Canara Bank. It is a Board- managed company. The Funds Management Department of Canfina started in 1987. The quantum of funds handled by the department was Rs. 2,000 crores during 1-3-1992 to 31-3-1992. Canfina was also a player in primary market for PSU bonds. The Funds Department played major role in mobilising funds for various schemes floated by Canbank Mutual Fund. The funds raised by this department constituted 50 per cent of the corpus of Canbank Mutual Fund [ see Exhibit-R2(6)]. The main function of the Funds Management Department was to accept monies from Public Sector Corporatio .....

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..... teeing a predetermined return. Under the same guidelines, it was further provided that the minimum period for which the funds were to be placed by the clients should be of one year. Under the same guidelines, it is further provided that all transactions would be carried out at market rates. Lastly, it was stipulated that undeployed funds were to be treated as borrowings of the Banks. This guideline is very crucial. The above guidelines show that an enforceable debt accrues after one year. That on the expiry of one year the Banks were bound to return the money with or without returns. The guideline regarding undeployed funds clearly shows that the funds entrusted to the Banks constituted borrowings of the Banks. However, within the PMS, when the Banks bought and sold securities, such selling and buying constituted transactions of the Banks. For example, payments were received by the Banks in case of sale of securities against delivery of BRs/Physicals/SGLs. BRs are documents of title. Under the BRs, the selling Banks promise to deliver the scrips, on demand, by the buying Banks. These BRs are as good as physicals. These BRs/SGLs etc. were in the name of the Banks. The Sale Cost Memo .....

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..... ks were entitled to claim delivery of physicals. Numerous suits have been filed in this Court for specific performance by the banks on the aforestated basis. This is because the transactions belonged to the Banks through the funds belonged to the customers. Before concluding, it may be mentioned that, on this point, wherever I use the word Banks it includes subsidiaries of the Banks, like Canfina. Hence, the present suit is maintainable. Lastly, under the guidelines - Exhibit-R3(34), the transactions were required to be entered into at market rates. On evidence, I have come to the conclusion that, in the present matter, transactions have taken place at off market rates. Therefore, the suit transaction was not a PMS transaction because it violated RBI guidelines. 36. Analysis of section 10 of the Evidence Act : In the present matter, it was vehemently urged on behalf of respondent Nos. 2 and 3 that the above four contracts were independent contracts. That, they were not connected with each other. That, a false impression is created by virtue of the sequence and the rates at which the contracts were entered into between the above two dates viz. 13-5-1992 and 15-5-1992. It was contend .....

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..... ert acts and the loss. 37. Before concluding this Judgment, it may be mentioned that the respondent No. 3 has pleaded that the claim against Dhyan Investments based on unjust enrichment is time barred. It is pleaded that, originally, when the suit was filed, no such plea was taken. That, by amendment which was granted on 22-7-1998 the said plea has been taken. It was contended, orally, that the amendment of 1998 constituted a new case. It was contended that no particulars of fraud have been pleaded as required under Order VI, Rule 4 of the Code of Civil Procedure. It was further contended that in the absence of the said particulars the case was time barred. I do not find any merit in the said contention. Dhyan Investments received Rs. 21 crores from HPD on 15-5-1992. The said amount came out of Rs. 62.50 crores. The fraud was detected in 1994. Thereafter, Canfina lodged the case with the CBI on 31-5-1994. The FIR is of the same date. Hence, the suit is within time. 38. In the light of the above discussions issues have been answered as above. 39. In number of judgments, the Special Court has directed payment of interest at the rate of 18 per cent per annum on the footing that partie .....

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..... decreed to pay to the Petitioners a sum of Rs. 38,01,13,561.64 as per the Particulars of Claim [Exhibit-A to the Petition] with further interest on Rs. 22,12,50,000 at the rate of 18 per cent per annum from the date of the Petition [12-5-1995] till payment and/or realisation. B.That, the respondent Nos. 1 to 5 are jointly and severally ordered and decreed to pay to the Petitioners Rs. 10 lakhs towards costs. C.That, the respondent Nos. 1 to 5 are jointly and severally are further directed to pay Rs. 3,01,518 to respondent No. 6 being actual costs incurred by them as per the Bill of costs submitted to the OSD attached to this Court by the Advocates of the Custodian. CHART Y-1 ACTUAL TRANSACTIONS OF CANFINA IN CANPREMIUM AT VARYING RATES EVEN THOUGH NAV WAS SAME FOR THE RELEVANT PERIOD Sr. No. Date of transactions Purchase/Sales Party Applicable NAV as on Total Face value of Units Purchased/ Sold Rate (on FV of Rs. 100) Exh. No. Evidence Page 1. 5-12-1991 Purchase/Growmore 30-11-1991 2,00,00,000 109.0 R2(21) Colly Page 327 Page 251-252/292-294/ 295-297 2. 5-12-1991 Purchase/Finolex Pipes ......"....... 9,00,00,000 109.0004 R2(21) Colly Page 327 Page 251/252/292-294/ 295-297 3. 5-12- .....

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..... lain the same though the applicable NAV was the same for the entire month of December 1991. 4.Evidence PagePW-1 admitted that Canfina had suffered a loss of Rs. 1 crore (approximately) on 5-12-1991 295-297on sale of Canpremium of 11 crores face value at a lower rate (Rs. 100) (Item 4 above) as against purchase of Canpremium of face value 2 crores + face value 9 crores = to Rs. 11 crores, at a higher rate (Rs. 109.00 and Rs. 109.0004 (Items 1 and 2 above). PW-1 was asked whether Canfina had adopted any legal investigation/action/enquiry regarding these three transactions (i.e. Items 4, 1 and 2 above). PW-1 stated that he was not aware of any such legal investigation/action/enquiry regarding these three transactions. 5.Evidence PageEven though purchase rate in December 1991 varied from Rs. 101.0274 (Item 3 above) to 297Rs. 112.50 (Item 7 above). PW-1 could not say whether any legal action/enquiry/complaint/investigation was taken/made by Canfina and that either Ashokkumar Kini or present M.D. would be able to answer this. 6.Evidence PageThough NAV was same for January 1992 there was a sale of Canpremium at a lower rate 252-253(Item 8 above) and purchase of Canpremium in 8 days at a h .....

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..... Party Sale/ Purchase Notes of Conclusion on the basis of evidence of PW-1 . Face Value (Rs.) Rate Evidence Page 6. Part of Ex. R2(14) (Colly) Page 286 19-9-1990 11-12-1991 18-3-1992 Sahara Int l Sahara Int l Sahara Int l Sale Sale Purchase 1,00,00,000 1,50,00,000 2,50,00,000 11.75 310 310 310 In cross examination by R3, PW-1 stated that it is possible that these transactions are also reversal (Page 310) 7. Part of Ex. R2(14) (Colly) Page 286 20-12-1991 13-5-1992 Citibank Citibank Purchase Sale 7,50,00,000 7,50,00,000 14.25 16.50 310-311 310-311 (a) In cross examination by R3, PW-1 stated that it is possible that these transac- tions are of reversal. How- ever, he can explain and give a definite answer only on the basis of dealers pad and deal slips (Page 311) (b) In re-examination PW-1 changed his answer on the basis of the dealers pad Ex. R2(10)(Colly) and stated that it is not a reversal transaction but it is an outright transaction (Pages 464-469). (c) On further cross examination by R2 the witness said that his answer in re-examination is solely based on inference and not based on any other basis (Pages 478 to 480). (d) On further cross exami-nation by R3 the witness said that .....

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..... 1.10 112.1860 203 203-204 In cross examination by R2; PW-1 admitted that these entries show reversal (Page 205) .9 Part of Ex. R2 (21) (Colly) Page 327 5-6-1991 26-6-1991 Finolex Finolex Sale Purchase 11,00,00,000 11,00,00,000 100 100 303 303 In cross examination by R3; PW-1 stated that they can be reversal transactions (Page 303) .10 Part of Ex. R2 (21) (Colly) Page 327 27-9-1991 4-10-1991 Grindlays Grindlays Purchase Sale 1,70,00,000 1,70,00.000 303 303 In cross examination by R3; PW-1 stated that they can be reversal transactions (page 303) .11 Part of Ex. R2 (21) (Colly) Page 327 20-12-1991 13-5-1992 Citibank Citibank Purchase Sale 28,00,00,000 28,00,00,000 11.25 14.00 303-304 304 ( a ) In cross examination by R3; PW-1 stated that 13.5.91 is a suit transaction. Even if it is a suit transac tion, if could be reversal. However, definite answer cannot be given without looking at dealers pad. ( b ) In Re-examination, PW-1 changed his above answer and stated, on seeing dealers pad [Ex R2 (10) (colly)], that it is not a reversal (Pages 464-466) Sl. No. Exhibit No. Date Party Sale/Pur-chase Face Value Rate Notes of evidence Page Conclusion on the basis of evidence of PW-1 ( c ) On fur .....

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..... ctions of borrowings and re-payments which include the interest component. CHART Y-5 DETAILS OF TRANSACTIONS BY CANBANK FINANCIAL SERVICES LIMITED IN CANDOUBLES AT OFF-MARKET RATES Sl. No. Date Contract Rate Exhibit Re: Contract Rate R2 (14) Market Rate Exhibit Re: Market Rate Evidence of PW-1 11 R3 (4) (Colly.) 1. 20-12-1991 14.25 Page 286 12 41.25, Page 5 of 20-12-1991 R3 (4) Pages 304-305 322-323 2. 7-4-1992 32 Page 286 40, 47.50 45 40 42.50 Page 5 of 7-4-1992 R3 (4) Page 22 of Page 255 40 30-4-1992 Pages 255-256 (30-4-1992) 3. 2-5-1992 20 Page 286 40 37.50 (6-5-1992) (No. trading on 2-5-1992) R3 (4) Page 5 of 6-5-1992 4. 13-5-1992 16.50 Page 286 35,30, 33.50 R3 (4) Page 5 of 13-5-1992 Pages 305-307 5. 14-5-1992 20 Page 286 31.25 35 31 R3 (4) Page 5 of 14-5-1992 Pages 256-257 Sl. No. Date Contract Rate Exhibit Re: Contract Rate R2 (14) Market Rate Exhibit Re: Market Rate Evidence of PW-1 6. 15-5-1992 20.35 Page 287 31.25, 33.75, 30 (18-5-1992) Ex. EE Pages 305-306 7. 29-5-1992 20.2548 Page 287 22, 24 R3 (4) (Colly.) page 22 of 29-5-1992 Page 305 8. 15-6-1992 17.75 Page 287 22.50 21.50,23 (10-6-1992) Market Closed on 15-6-1992 R3 (4) (Colly.) Page 22 of 10-6-1992 Page 257 Note : .....

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..... nt receivableRates at which finalAmountcrores)dealer s pad)(Rs.)payment acceptedre ceivable as per col. 5 (Rs.) 123456 6-2-199214% Godrej Soaps5.0095.6748525410.9665.0033190410.96Evidence 6-2-199214% Insil10.3099.3210107357876.7162.5069431876.71pages 6-2-199213% CIL40.0099.4465422797506.8571.50310931506.85384-385 6-2-199213% CIL15.0099.5733158549041.1071.50116439041.20 6-2-199214% Haryana Petro5.0099.336452122994.5265.0034954794.50 6-2-199215% India Rayon 3.53 105.6598 39154012.58 92.00 34332876.73 Total78.83828506842.72599280506.85 When PW-1 was asked if Canfina had compensated HPD for the various amounts received from HPD, he answered that he did not know. Evid Pg. (Evidence page 392) 392 CHART Y-8 DETAILS OF TRANSACTIONS OF SALE OF 9% TAX-FREE BONDS BY CANFINA TO CITIBANK DURING FEBRUARY - MARCH 1992, PHYSICALS OF WHICH ARE NOT TAKEN BACK BY CANFINA AFTER INTEREST DUE DATE S. No.DateBondFace Value (Rs.)Rate (Rs.)Price (Rs.)Exhibit R3(27)Evidence of PW-1 1.1-2-19929% IRFC50,00,00,0009547,50,00,000Page 30Pages 392 - 398 2.3-2-19929% IRFC65,00,00,0009360,45,00,000Page 30Pages 420 - 421 3.3-2-19929% IRFC25,00,00,0009523,75,00,000Page 30 4.10-2-19929% PFC35,00,00,0009332,55,00,000Pag .....

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..... -199298TO TR 58517325372,00,00,000.00 28-4-199203TO CC7325362,05,65,000.00 ASHWIN M. 28-4-1992122BY CLG 2,39,00,000.00 28-4-1992269TO TR 59047325401,00,00,000.00 28-4-1992341BY TRF 1,75,00,000.00 29-4-1992118BY TRF 1,56,00,000.00 29-4-1992127BY TRF 6012 1,25,00,000.00 29-4-1992132TO TR7325412,23,00,000.00 KUNJVAN 29-4-1992133TO TR7325422,86,00,000.00 CLARION 29-4-1992182BY TRF 1,00,00,000.00 29-4-1992183TO TRF PO7325441,86,30,025.00 TOTAL95,97,98,975.00112,35,00,000.00 B - FOR THE PERIOD FROM 5-5-1992 TO 12-5-1992 DateTRParticularsChequeDebitCreditNo.No.AmountAmount 5-5-1992157BY TRF 22,00,00,000.00 5-5-1992158TO CC DD7325451,13,00,000.00 CHATURVEDI 5-5-1992159TO TR PO7325462,11,25,025.00 5-5-1992162TO TR PO7325479,64,00,025.00 5-5-1992163TO TR PO7325481,81,00,025.00 5-5-1992164TO TR PO7325492,23,00,025.00 DateTRParticularsChequeDebitCreditNo.No.AmountAmount 5-5-1992166BY TRF 5159 20,00,00,000.00 5-5-1992168TO TR PO 25,00,00,025.00 CH/32551 6-5-1992199TO TR PO7325562,30,00,025.00 7-5-1992222BY CLG 25,05,47,945.00 7-5-1992223TO TR PO7325574,11,00,025.00 7-5-1992224TO TR PO73255820,93,73,637.26 11-5-1992186BY TRF 4,25,00,000.00 11-5-1992187TO TR PO7325611,25,00,025.00 11-5-1992188TO .....

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..... 1992 164 BY TRF 13,04,00,000.00 29-5-1992 174 BY TRF 27,96,00,000.00 29-5-1992 175 BY TRF 1,85,00,000.00 29-5-1992 177 BY TRF 3,25,00,000.00 29-5-1992 178 BY TRF 1,42,00,000.00 Date TR No. Particulars Cheque No. Debit Amount Credit Amount 29-5-1992 179 BY TRF 1,70,00,000.00 29-5-1992 181 TO TR PO 732624 79,00,00,025.00 29-5-1992 182 TO TR PO 732616 15,00,00,025.00 TOTAL 507,19,50,162.26 131,65,23,450.00 (A+B+C+D+E) = GRAND TOTAL 133,05,00,100.00 516,98,27,914.50 CHART Y-10 1. Statement showing sales of securities by Canfina and receipt of consideration by Canfina without parting with any security in physicals from against them. A. CANDOUBLE - SALES Purchase Face Value (Rs.) Rate (Rs.) Total Price (Rs.) Remarks Sahar Div. 1,00,00,000 117.50 1,17,50,000 Received against BR Citibank 20,00,00,000 112.05 22,41,00,000 " Rama Petro 1,43,00,000 105 1,50,15,000 " Grindlays Bank 5,00,00,000 " Shar Int l 1,50,00,000 " Grindlays Bank 2,00,00,000 32 6,40,00,000 " Standard 5,00,00,000 20 10,00,00,000 " Chartered B. CANPREMIUM - SALE Date Purchase Face Value (Rs.) Rate (Rs.) Total Price Remarks 31-5-1991 BOI Finance 7,00,00,000 100 7,00,00,000 Received against BR 5-6-1991 Finolex Pipes 11,00,00,0 .....

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..... ion) V Note : 1.There is no grievance in the Petition about delay in delivery of securities of Canfina or about payment of money by Canfina against a letter from Hiten Dalal promising to deliver securities, in respect of the 15-5-1992 transaction between Dhyan Canfina. 2.There is no allegation in the Petition that either of the above two factors is a circumstance forming part of or indi cating a conspiracy. 3.The above Statements I to IV show that it was normal for Canfina to receive or part with funds merely against a prom ise to deliver securities either contained in a letter or a BR. 4.The above statements I to IV show that there is hardly any transaction where securities are actually delivered against payment. 5.The above statements I to IV are some illustration from extracts of Security Ledger Relating to Candouble [Ex.R2(14)] and Canpremium [Ex.R2(21)]. 6.Hence the suit transactions are not abnormal but are in fact in the ordinary, regular and normal course of business. CHART Y-11 STATEMENT SHOWING EXTRACTS FROM STATEMENT OF ACCOUNT OF HITEN P. DALAL WITH ANDHRA BANK (EXHIBIT C) DateParticularsCh. No.DebitCreditBalance 15-5-1992To Clearing Ret0300000.000.0010365989.51 15-5-19 .....

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..... te Para Number Date Type Price Party Name Rate in Ps. Purchase (F.V.) Sale (F.V.) Balance Rs. Ps Rs. Ps Rs. Pss A.1 (a-d) 4283/1 11-12-91 SM 108.6042000 NLC RO 1 8,81,27,057 0 9,57,09,667.00 0.00 4014/3 20-12-91 PM 112.5000000 CITI HITEN 28,00,00,000 28,00,00,000 31,50,00,000.00 31,50,00,000.00 DR 4038/3 20-12-91 SP 112.5000000 IRFC 28,00,00,000 0 31,50,00,000.00 0.00 R/F A.2 (a-e) 2222/4 12-5-92 SP 127.1051000 KRIBCO 001 1,57,35,000 34,94,000 2,00,00,000.00 44,41,615.00 DR 2276/1 13-5-92 PP 127.1559000 HUDCO 001 1,50,28,000 1,85,22,000 1,91,09,000.00 2,35,50,615.00 DR 2229/1 13-5-92 PP 140.1627400 STDCHTD 001 27,65,06,000 29,50,28,000 38,75,53,385.00 41,11,09,000.00 DR 2238/1 13-5-92 PP 136.9512000 STECHTD 001 71,70,92,000 101,21,20,000 98,20,66,000.00 139,31,75,000.00 DR 2226/1 13-5-92 SM 140.0000000 CITI 28,00,00,000 73,21,20,000 39,20,00,000.00 1,00,11,75,000.00 DR 2277/1 13-5-92 SP 136.7501000 IRFCI 001 73,21,20,000 0 10,011,75,000.00 0.00 Transaction Bank/ Broker Details No. of Securities Debit Credit Balance Note Number Date Price Party Name Rate Purchase Sale Balance Rs. Ps Rs. Ps Rs. Ps Para Type in Ps. (F.V.) (F.V.) A.3 2304/5 15-5-92 200.0000000 DHYAN 20,00,00,000 20,00, .....

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..... 00 33,81,42,000 11,23,50,700.00 51,54,28,350.00 DR PM RO1 4023/1 20-12-91 150.0364000 CWC 13,71,000 33,95,13,000 20,57,000.00 51,74,85,350.00 DR PM RO1 4038/1 20-12-91 152.0044000 IRFCI 29,24,25,000 4,70,88,000 44,44,98,950.00 7,29,86,400.00 DR SP R/F 8264/1 20-12-91 150.0000000 HUDCO 20,00,00,000 24,70,88,000 30,00,00,000.00 37,29,86,400.00 DR SP O/R 8265/1 20-12-91 150.0000000 IRFCI 20,00,00,000 4,70,88,000 33,00,00,000.00 7,29,86,400.00 DR SP R/F 4065/1 23-12-91 159.7172000 IRFCI 6,13,98,000 1,43,10,000 9,80,63,200.00 2,50,76,800.00 DR PM R/F 4069/1 23-12-91 159.7172000 PFC 6,13,98,000 4,70,88,000 9,80,63,200.00 7,29,86,400.00 DR PM RO1 4106/1 26-12-91 139.6350000 SAHARA RAHUL 2,00,00,000 2,70,88,000 2,79,27,000.00 4,50.59,400.00 DR SM 4111/1 26-12-91 139.6350000 IRFCI 2,00,00,000 4,70,88,000 2,79,27,000.00 7,29,86,400.00 DR PP RF2 4289/1 30-12-91 155.0000000 NLC 4,70,88,000 0 7,29,86,400.00 0.00 SM RO1 Transaction Bank/ Broker Details No. of Securities Debit Credit Balance Note Number Date Price Party Name Rate Purchase Sale Balance Rs. Ps Rs. Ps Rs. Ps Para Type in Ps. (F.V.) (F.V.) B.2 (a-e) 1911/4 2-5-92 SM 200.0000000 STDCHTD DIRECT 3,00,00,000 10,00,00,000.00 0.00 2219/4 1 .....

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