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TMI Blog2010 (5) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... s Suit No. 4/98 before the Special Court. The appellant had prayed for money decree in the amount of Rs. 3,18,06,868 together with interest at the rate of 24 per cent. Respondent No. 1, Can Bank Financial Services Limited, had opposed the claim and also lodged a counter claim, claim and decree in the amount of Rs. 2,53,75,000 from the appellant with interest with effect from 22-4-1992. The appellant claims to be a stock broker, being a sole proprietory concern of Mr. Naresh K. Aggarwala. The respondent No. 1, Can Bank Financial Services Limited, is a wholly owned subsidiary of Canara Bank. 3. The appellant had prayed for a decree against respondent No. 1 in respect of net amount payable arising out of two sets of transactions in shares, i.e., (i ) two transactions in the shares of Reliance Industries Limited (RIL) (ii) one transaction in respect of Steel Authority of India Limited (SAIL). It is claimed that on 14-2-1992 a contract was entered into between the appellant and Can Bank for purchase of one lakh shares of RIL at a price of Rs. 154 per share inclusive of all charges. On 23-3-1992 another contract was entered into by the appellant with Can Bank for purchase of one lakh sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 1 to credit Rs. 79 per share for five lakh shares of SAIL to the account of the appellant-company. The appellant claimed that by letter dated 17-9-1992 respondent No. 1 resiled from the contract regarding sale of shares of SAIL. The appellant therefore by letter dated 19-9-1992 once again requested for the co-operation of the respondents as the delivery had to be effected within reasonable period of time to avoid substantial losses. In this letter the appellant reiterated that one lakh shares only had been delivered and no other delivery had been made in respect of Reliance shares. Against contract note dated 14-2-1992 Rs. 1,54,000 was credited to the account of respondent No. 1 but the respondent No. 1 reiterated its stand in the letter dated 17-9-1992. 5. The appellant further stated that on 27-5-1993 respondent No. 1 issued a notice demanding an amount of Rs. 2,56,25,000 on the basis of account maintained up to 8-2-1992. By letter dated 14-6-1993 the appellant informed the respondent No. 1 that after reconciliation of the account, the appellant was liable to be paid by respondent No. 1 an amount of Rs. 2,59,75,000. It was further claimed that according to the statement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. This position is confirmed by the appellant in the statement of account signed on 17-7-1992 and again reconfirmed on 24-8-1992. It is only after the inquiry by respondent No. 1 dated 15-9-1992 about the position of one lakh shares that appellant got the mala fide idea of seeking illegal advantage of the cancellation entry having been recorded in respondent No. 1 books. This is particularly so because by then the share prices had gone up. Under these circumstances the appellant submitted a revised statement of account on 19-9-1992. According to respondent No. 1 the averments made in the plaint by the appellant do not convey the true position. Once the contract dated 14-2-1992 was cancelled, the question of delivery did not arise. Therefore nothing is payable by respondent No. 1 to the appellant on account of the contract dated 14-2-1992. 8. With regard to the contract in relation to SAIL shares, the fact that the appellant entered into a deal with respondent No. 1 on 27-2-1992 for purchase of five lakh shares of SAIL at the price of Rs. 51 is admitted. It was however denied that a contract note was issued to evidence the transaction. It is stated that the contract note was nei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contractual obligations, of respondent No. 1. The appellant reiterates that the only one lakh shares of RIL were delivered against contract dated 14-2-1992. It is denied that the contract dated 14-2-1992 was cancelled by the appellant. It is further reiterated that the respondent No. 1 is liable to make delivery of the remaining one lakh shares; contract is to be purchased by the appellant vide contract note dated 23-3-1992. It is further stated that the appellant is still ready and willing to perform his part of the contract but the respondents are trying to wriggle out of their contractual obligations. 11. On the basis of the pleadings the Special Court framed the following issues : "1. Whether Plaintiffs prove that Rs. 2,59,75,000 money is due from and payable by Defendant No. 1 on account of transactions undertaken on behalf of or with Defendant No. 1 after accounting for all transactions in the running account as alleged in para 7 of the Plaint? 2. Whether Plaintiffs have correctly appropriated one Lac shares delivered towards the contract note dated 14-2-1992 (i.e., for Reliance Industries Ltd. shares) purchased @ of Rs. 154 as alleged in para 8a(ii) of the Plaint? 3. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per annum from 22-4-1992 till the date of realisation is passed against the appellant. The appellant was also directed to pay costs entitled to the respondents. 13. The present appeal has been filed by the appellant being aggrieved by the aforesaid judgment and decree. Mr. Rupinder Singh Suri, learned Senior Counsel for the Appellant, had made elaborate submissions in Court which have been reiterated in the written arguments, filed later. He submits that the impugned judgment in addition to being totally contrary to the facts, records and law in general, is a classic case wherein the prejudice against the appellant is writ large, owing to the fact that he is a notified person. The Special Court has totally disregarded the evidence adduced by the appellant in support of its case. The counter claim has been erroneously decreed merely on surmises and conjectures. It is also submitted that the interest at the rate of 12 per cent with effect from 22-4-1982 till realisation has been illegally granted without there being any evidence in support. In support of his submission, Mr. Suri, has relied on numerous documents which were on the record. Mr. Suri has placed heavy reliance on the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the contract with regard to SAIL shares being itself illegal could not be enforced in law. In fact respondent No. 1 had all along maintained that contract note dated 27-2-1992 would be honoured in due course. It is only on 17-9-1992 that respondent No. 1 for the first time tried to wriggle out of the contract by stating that the transaction was against law and hence void and unenforceable. According to Mr. Suri this plea is not acceptable and there is no bar in law for entering into such a contract. The reliance placed by the Special Court on the circular dated 27-6-1969 is totally misplaced and contrary to the facts of the case. According to learned senior counsel, Mr. Suri, the circular would not be applicable to sale/purchase of securities on a contract for cash. It was for this reason that statement of account of respondent No. 1 would show that the contract was alive till at least 31-3- 1992 when it was reversed in the books of account. This, according to Mr. Suri, was just a ploy on the part of respondent No. 1 to escape its liability under the contract dated 27-2-1992. Mr. Suri submitted that the bias of the Special Court is evident from the manner in which only selected p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect since contract relating to unquoted shares would be outside the purview of Delhi Stock Exchange Rules, By-Laws and Regulations. It is also admitted that the shares at the relevant time were not quoted at any centre. This admission is reiterated in the letter dated 18-8-1992 seeking to make clarification in response to the letter dated 7-8-1992. It was confirmed by the appellant that only one lakh shares of RIL had been received from the Bombay office of respondent No. 1 and that no delivery was received from H.P. Dalal. By letter dated 20-4-1992 it was clearly stated that barring the outstanding transaction of five lakh shares of SAIL there is nothing outstanding. Mr. Bhushan submits that the letter dated 15-9-1992 is being misinterpreted by the appellant which is merely an observation made by respondent No. 1. According to Mr. Bhushan by that time the scam had been discovered, a new management had taken over and the letter had been written on going through the records. Hence it was observed that against two sale contracts of RIL, for one lakh shares each, physical delivery had been given of one lakh shares by Hiten P. Dalal. To take advantage of the aforesaid letter, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract was relief for damages for breach of contract." 16. The Special Court also upon reading of the plaint concludes that it is not a suit filed by the appellant for a decree in the amount of damages for breach of contract. In our opinion, the aforesaid findings cannot be said to be erroneous or based on no evidence. In fact in paragraphs 6 and 7 of the plaint the appellant had stated as follows : "6. The plaintiff and defendant No. 1 have been doing regular business over a fairly long period of time and are maintaining running accounts respectively. 7. The present suit is in respect of recovery of money which is due from the defendant No. 1 on account of transactions undertaken on behalf of with the defendant No. 1 after accounting for all the transactions in the running accounts and the amount whereof has not been paid to the plaintiff in spite of requests for the same." 17. In the face of these averments, we find it a little difficult to appreciate the submission of Mr. Suri that the findings on these issues are erroneous or not supported by any evidence. The Special Court also notices that the appellant had, in fact, adjusted the delivery of shares towards the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find any merit in the submissions of Mr. Suri. Admitted position is that on the date when the contract with regard to the SAIL shares was entered into, the shares were unlisted. It is also the admitted position that on that day, the circular dated 27-6-1969 issued under section 16 of the Securities Contract Regulation Act, 1956 was in existence and in force. Relevant portion of the aforesaid circular reads as follows : "S.O. 2561. In exercise of the powers conferred by sub-section (1) of Securities Contract (Regulation) Act, 1956 (42 of 1956) the Central Government being of opinion that it is necessary to prevent undesirable speculation in securities in the whole of India, hereby declares that no person in the territory to which the said Act extends shall save with the permission of the Central Government enter into any Contract for the sale or purchase of securities other that such Spot delivery contract or Contract for cash or Hand delivery or Special Delivery in any securities as is permissible under the said Act and the Rules, bye-laws and regulations of a recognized Stock Exchange." It is thus clear from the circular that after issuance of these Circular, transactions into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is permitted by the Act, bye-laws and regulations of the Stock Exchange is prohibited by the circulars." The appellant was aware of the illegality of the transaction. It is evident from the letter dated 27th of July, 1992 written by the appellant to the respondent No. 1 wherein it is clearly stated that "technically this was incorrect since contracts relating to unquoted shares would be outside the purview of Delhi Stock Exchange rules, bye-laws and regulations." In the face of such admission, the Special Court, in our opinion, has correctly concluded, as noticed above. In our opinion the view expressed by the Special Court does not call for any interference. 20. The contention that the circular did not apply to unlisted securities was duly considered and rejected by the Special Court. The Special Court thoroughly considered the term 'securities' as defined in section 2(h) of the Act. It reads as under:- "2(h) Securities include- (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia)derivative; (ib)units or any other instrument issued by any collective inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid contract, the delivery of one lakh shares was made by the respondent No. 1 to the appellant on 22-4-1992. After the receipt of a letter dated 15-9-1992 when the Management of respondent No. 1 had changed, the appellant started claiming that the delivery of one lakh shares on 22-4-1992 had been adjusted against the cancelled contract dated 14-2-1992. The respondent No. 1 had based the counter claim on the difference of price in shares between two periods of contract i.e., 14-2-1992 and 23-3-1992. The difference of amount of Rs. 2,21,00,000 was claimed as the amount due from the appellant to the respondent No. 1. A perusal of the letter dated 27-5-1993, which contains a statement of account with the subject "settlement of outstanding" clearly shows that the respondent No. 1 is claiming a sum of Rs. 2,56,25,000 as outstanding against the appellant from various transactions as per the details given therein. Against the entry dated 4-3-1992, there is a clear entry with regard to the sale of one lakh RIL shares @ Rs. 375 per share given a total consideration of Rs. 3,75,00,000. The respondent No. 1 had clearly requested the appellant to settle account by paying Rs. 2,56,25 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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