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CASE NO.: Appeal (civil)  7941 of 1995 Appeal (civil)  8340 of 1995

PETITIONER: Citi Bank N.A.                   Canara Bank & Ors.                                               

RESPONDENT: Standard Chartered Bank & Others                                 WITH Citi Bank N.A. & Ors.                                               

DATE OF JUDGMENT: 08/10/2003

BENCH: R.C. Lahoti & Ashok Bhan.

JUDGMENT: J U D G M E N T

BHAN,J.

                This  judgment shall dispose of Civil Appeal No.7941 of 1995 arising   in Suit No.22 of 1994 (filed by Standard Chartered Bank against Citi Bank  & Others) decided on 10th July, 1995 and Civil Appeal No. 8340 of 1995  arising in Suit No. 20 of 1994 (filed by Citi Bank against Standard Chartered  Bank & Others), decided on 7th July, 1995.  Suits were tried by the Special  Judge appointed under the Special Courts (Trial of Offences Relating to  Transactions in Securities) Act, 1992, hereinafter referred to as ’the Act’.   

During 1991-92, Reserve Bank of India noticed that large scale  irregularities and mal practices were committed in transactions   in both the  Government and other securities, by some  brokers in collusion with the  employees of various banks and financial institutions.  The said irregularities  and mal practices led to the diversion of funds from banks and financial  institutions to the individual accounts of certain brokers.  To deal with this  situation and, in particular, to ensure speedy recovery of the huge amount  involved and to punish the guilty and restore confidence in and maintain the  basic integrity and credibility of the banks and financial institutions, this Act  was enacted for establishment of Special Courts to be presided over by a  sitting Judge of the  High Court to be nominated by the Chief Justice of the  High Court within the local limits of whose jurisdiction the Special Court is  situated, with the concurrence of the Chief Justice of India. The Act  provided for appointment of one or more Custodian for attaching the  properties of the offenders with a view to prevent diversion of such property  by the offenders.  The Custodian, on being satisfied, on information received  that any person has been involved in any offence relating to transactions in  securities after the 1st day of April, 1991 and on and before 6th June, 1992  could notify the name of such person in the Official Gazette.  Special Courts  were given the jurisdiction to deal with cases of civil as well as criminal  liability of the notified person.

       The present appeals arise out of a set of transactions between three  parties, namely,  the Citi Bank, Standard Chartered Bank ( for short ’SCB’)  and Canbank Mutual Fund (for short ’CMF’) through its trustees.

       Suit No. 22 of 1994 filed by SCB has been decreed against the Citi  Bank and that is how the Citi Bank is in Appeal in Civil Appeal No. 7941 of  1995 and Suit No. 20 of 1994 filed by the Citi Bank has been decreed  against the CMF and  that is how CMF is in appeal in Civil Appeal No. 8340  of 1995.

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       The brief facts giving rise to these appeals are: Citi Bank is a corporation incorporated under the laws of United  States of America, carrying on business of banking, inter alia,  at Sakhar  Bhavan, Nariman Point, Bombay.  SCB is a bank incorporated by royal  charter under the laws of England and Wales.  CMF is represented through  its trustees. CMF was made a party respondent along with its trustees in Suit  No. 22 of 1994 filed by SCB initially; they were given up on the application  of  SCB on 10th July, 1995.  CMF has been made a party in Civil appeal No.  7941 of 1995 (in Suit No. 22 of 1994), though as stated above it had been  deleted from the array of parties in the suit at the instance of the plaintiff  SCB.

       On 27th May, 1991, CMF purchased certain securities (11.5% GOI  2009 Bonds) from the Bank of Karad.  Citi Bank purchased from CMF  11.5% GOI 2009 bonds of the face value of Rs.44,93,20,414.17 p. for  Rs.44.8505 crores on the same day.  The total consideration was paid by the  Citi Bank to CMF.  CMF handed over to the Citi Bank their Subsidiary  General Ledger ( for short ’SGL’) Transfer Form, duly executed on their  behalf to enable the Citi Bank to get the said securities duly transferred to  their name in the SGL maintained by the CMF with the Reserve Bank of  India. CMF maintains with the Public Debt Office (for short ’PDO’) of the  Reserve Bank of India an account into which its purchase of the Government  of India Securities were credited and whenever it desires to sell any  Government securities, instead of physically handling the papers, it merely  issues a SGL transfer form  which can roughly be equated to a non- negotiable account payee cheque in favour of the transferee.  A SGL has to  be issued in favour of a named person and no blank SGL transfer form can  be issued under the Regulations governing the use of SGL transfer form  framed by PDO  of the Reserve Bank of India.   

Citi Bank on 27th May, 1991 presented the SGL transfer form to the  Reserve Bank of India but the same was dishonoured for want of insufficient  balance.  An endorsement to that effect was made on the SGL form. It was  presented once again on 6th June, 1991 when it was again dishonoured for  want of balance.   

On 18th & 19th September, 1991, Citi Bank agreed to sell to SCB  11.5% GOI 2009 Bonds of the face value of Rs. 42 crores and Rs. 8 crores  respectively against receipt of the purchase price paid by the SCB to the Citi  Bank.  Since the bonds were not ready, the Citi Bank issued two Bankers  Receipts (for short ’BRs’) Nos. 0912621480 and 0912611410 for the said  Bonds with the understanding that the Bonds will be delivered when ready  in exchange for the duly discharged BRs and in the mean time the BRs will  be held on account of the SCB.  A seller issues a BR acknowledging its  liability to deliver the purchased securities, when purchaser has made the  payments. The exact term mentioned in the BR is as follows:

"The Securities/Debentures/Bonds of face  value of Rs.42,00,000.00 will be delivered  when  ready  in exchange for this receipt duly  discharged and in the meantime the same will  be held on account of Standard Chartered  Bombay."

       By a letter dated 19th September, 1991, the SCB requested the Citi  Bank to deliver to the SCB, SGL forms issued by CMF in exchange for the  two BRs issued by the Citi Bank.  Accordingly, the Citi Bank delivered to  the SCB, the (1) SGL form which had been issued by CMF in its favour of  the face value of Rs. 44.8505 crores and (2) their own SGL form of the face  value of Rs.5,41,95,000/- in exchange of the two BRs making it equivalent  to Rs. 50 crores i.e. the amount advanced by SCB for purchase of the GOI

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Bonds.  SCB delivered to the Citi Bank, the two BRs duly discharged which  had been earlier issued by the Citi Bank  in favour of SCB. The letter dated  19th September, 1991 written by SCB to the Citi Bank is to the following  effect:  "We hereby enclose two BRs (1) 42 crores (2) 8  crores issued by you of 11.5% GOI 2009  on  18.9.91 & 19.9.91 respectively.  We now request  you to give us SGLs of Canbank Mutual Fund in  exchange of the same."

                                                           [emphasis added]         Allegedly on 8th of October, 1991 SCB addressed a letter to the CMF  requesting CMF to issue a fresh SGL transfer form in its name in lieu of  SGL transfer form received by the SCB from the Citi Bank. CMF in their  written statement in Suit No. 22 of 1994 denied having received the said  letter. The letter was attached by the SCB with its plaint in Suit No. 22 of  1994 and this fact was mentioned in the plaint as well. Another important  fact which needs to be noticed  is that on 25th November, 1991 SCB received  the interest due as on 19th November, 1991 of the said bonds vide cheque  No.944073 dated 25th November, 1991 in the sum of Rs.2,56,33,787.50 p.  drawn on Andhra Bank.  The interest was neither received from the Citi  Bank nor from the CMF.  The same was received from a third party whose  name was not disclosed in the plaint by the SCB.  Citi Bank’s SGL form of  the value of Rs. 5,00,95,000/- was duly encashed  by the SCB and there is no  dispute about it.

       On 17th June, 1991 SCB addressed their advocate’s letter to the Citi  Bank calling upon the Citi Bank to forthwith handover to SCB the  consideration of Rs. 44.8505 crores paid to the Citi Bank with further  interest in respect of the said bonds as they had not received delivery of the  said bonds from CMF in spite of  the lapse of over nine months from the  date of giving  of the SGL of CMF. Advocate for the Citi Bank sent a reply  to the advocate’s notice of SCB refuting the claim of the SCB. According to  the Citi Bank,  the liability of the Citi Bank to deliver the securities (11.5%  of GOI  2009 Bonds) under the contract of sale between the Citi Bank and  SCB stood discharged and the Citi Bank ceased to be liable to carry out any  further obligation in respect of  the said transactions.

       On 8th October, 1992 SCB filed a suit against the Citi Bank in the  Federal Court at New York claiming consideration paid by the SCB to the  Citi Bank.  SCB also filed a suit bearing No. 3837 of 1992 in the High Court  of Judicature at Bombay on its original side against the Citi Bank for  recovery of the aforesaid amount due towards the Bonds. Citi Bank made an  application to the Federal Court at New York seeking dismissal of the suit  on the ground of forum non-convenience.  By an order dated 22nd April,  1994 the Federal Court dismissed the said suit, inter alia, granting liberty to  the SCB to revive the suit in the event the suit filed by the SCB in the  Bombay High Court was not disposed of within a reasonable period of time.   Before the service of summons in Suit No. 3837 of 1992, Citi Bank filed a  suit in the nature of third party proceedings being Suit No. 20 of 1994 before  the Special Court at Bombay constituted under the Act, inter alia, against the  SCB, CMF and its trustees in which the Citi Bank pleaded that in the event  of a decree being passed against the Citi Bank and in favour of the SCB in  Suit No. 3837 of 1992 filed by the SCB against the Citi Bank, Citi Bank was  entitled to a decree against CMF for delivery of the original securities, or, in  the alternative for the refund of the consideration paid and for other reliefs.

 Plaint in Suit No. 3837 of 1992 was returned by the High Court for  being presented to the Special Court because one of the parties notified  under the Act was involved. The suit was transferred to the Special Court  and renumbered as Suit No. 22 of 1994. Citi Bank after service of the  summons in Suit No. 22 of 1994 filed its written statement.

       Primarily the case of SCB against the Citi Bank was for return of  money on the ground that for consideration which was paid on 18th and 19th

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September, 1991, it had not received the transacted securities.  That Citi  Bank expressly/impliedly warranted that CMF would transfer the Bonds and  on its failure to do so, the Citi Bank was obliged to deliver the Bonds.  That  the action of Citi Bank was fraudulent and amounted to deceit.  That  ’useless’ and ’worthless’ SGLs were given by Citi Bank which even could  not be transferred in its name.  In the written statement filed by SCB in Citi  Bank’s suit an additional plea (which is absent in its own suit filed two years  earlier) was taken to the effect that the SGL sought by SCB was an SGL of  CMF in favour of SCB and not the one drawn in favour of Citi Bank.  Citi  Bank in its defence in suit no. 22 of 1994 pleaded and contended that as  SCB had on its own volition asked for and took the SGL of CMF which was  in its possession and returned the two BRs duly discharged and therefore  the  Citi Bank was no  longer under any obligation to either pay any sum  or to  deliver any securities much less to refund the money.    That SCB returned  two BRs duly discharged in exchange of the SGL of CMF at its express  desire.  The obligation to deliver bonds under BRs was substituted by  delivery of the SGL of CMF.  Citi Bank similarly claimed complete  discharge in its own suit.  Citi Bank in its suit claimed for a decree against  CMF in case a decree was passed against the Citi Bank in the Suit filed by  SCB.  The defence taken by the CMF in the two suits was more or less  common.  In substance it was that all these transactions were part of  Hiten  Dalal’s transactions with SCB and that CMF as well as Citi Bank were  merely used as a conduit to pay monies from the Bank of Karad which was  basically a Hiten Dalal’s account to SCB and from SCB to the Bank of  Karad and that all these transactions were in pursuance of an arrangement  which Hiten Dalal had with SCB under which SCB used to "Park" funds  with Hiten Dalal for guaranteed return of 15 percent, although this parking  of funds was shown simulated transaction in securities.

       On these broad pleadings the following separate issues were framed in  Suit No.20 of 1994 between Citi Bank and SCB (Set A) and between Citi  Bank and CMF(Set B):

ISSUES IN SUIT NO. 20 OF 1994 A.      ISSUES BETWEEN THE PLAINTIFF (CITIBANK  N.A.) AND  DEFENDANT NO. 2 (STANDARD CHARTERED BANK). 1.      Whether the liability of the Plaintiffs towards Defendant No. 2 stood  discharged and the Plaintiffs ceased to be liable as alleged in  paragraphs 8 and 9 of the plaint? 2.      Whether the liability of the Plaintiffs towards Defendant 2 could have  been discharged only if Defendant No. 2 had obtained delivery of the  securities as alleged in paragraph 8 of the Written statement? 3.      Whether the remedy of Defendant No. 2 is only against Defendant  Nos. 3 to 3G as alleged in paragraph 9 if the plaint? B.      ISSUES BETWEEN THE PLAINTIFF ( CITIBANK  N.A.) AND  DEFENDANTS 3 TO 3G (CANARA BANK & OTHERS) 1.      Whether the alleged claim of the Plaintiff is contingent upon the  Plaintiff being held liable for the alleged claim of Defendant No. 2 in  Suit No. 22 of 1994 as alleged in paras 12 and 14 of the Written  Statement of Defendant Nos. 3A to 3G? 2.      Whether the two transactions dated 27th May 1991 are interconnected  with the Plaintiffs alleged transaction dated 18th September 1991 with  Defendant Nos. 2? 3.      Whether the alleged transaction dated 18th September 1991 with the  Plaintiffs are part of and/or connected with the alleged 15% informal  arrangement that Defendant No. 2 had with Defendant No. 1 and  whether the alleged transactions are illegal and opposed to public  policy as alleged para 8G of the Written Statement of Defendant Nos.  3A to 3G? 4.      Whether the Plaintiff and the Defendant Nos. 3A to 3G are not liable  to Defendant No. 2 for the reasons alleged in para 8D of the Written  Statement of Defendant Nos. 3A to 3G? 5.      Whether the Defendants are not liable for the claim in the suit in view  of the alleged facts and circumstances mentioned in paragraph Nos.  8F and 10 of the Written Statement of Defendant Nos. 3A to 3G?

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6.      Whether the two security transactions dated 27th May, 1991 were a  ruse by which Defendant No. 1 transferred funds to himself using  Defendant No. 3 as a conduit? 7.      Whether claim against Defendant Nos. 3A to 3G personally is barred  by limitation? 8.      Whether Defendant Nos. 3A to 3G are personally liable for the claim  in the Suit? 9.      Whether the Plaintiffs claim against Defendant Nos. 3 to 3G is not  maintainable in view of the facts and circumstances set out in  paragraphs 5(a) to 5(h) of the Written Statement of Defendant Nos.  3A to 3G?

In Suit No. 22 of 1994 issues were framed between the plaintiff SCB  and Citi Bank, defendant No.2.  No issues were framed between SCB and  the CMF. The same were as follows: ISSUES IN SUIT NO. 22 OF 1994 1.      Whether the Plaintiffs have no cause of action against Defendant No.  1 as alleged in Paragraph 1 of the Plaint. 2.      Whether for the reasons mentioned in paragraph 3 of their written  statement Defendant No. 1 stands discharged of all their obligations. 3.      Whether Defendant No. 1 gave any express or implied warranty of the  nature alleged in para 13 of the plaint. 4.      Whether there is any failure of consideration as alleged in para 14(3)  of the plaint. 5.      Whether Defendant No. 1 is guilty of any fraud or deceit as alleged in  para 14(g) of the Plaint. 6.      Whether any amount is payable by the 1st Defendant to the Plaintiffs  as alleged in para 15 of the plaint. 7.      To what reliefs are the Plaintiff entitled to? 8.      And generally.

Copies of documents in Suit No. 20 were tendered in the Court.  No  oral evidence was led by any of the parties in Suit No.20.  Suit No. 20 of  1994 was listed for hearing.  Citi Bank and CMF submitted before the  Special  Court that issues between Citi Bank and SCB should not be decided  in Suit No. 20 of 1994 (Citi Bank suit) but in Suit No. 22 of 1994 as issues  between Citi Bank and CMF were dependent on the result of Suit No. 22 of  1994 filed by SCB against Citi Bank. It was contended that the suit filed by  the Citi Bank was a contingent suit depending on the result of the suit filed  by SCB against the Citi Bank.  This objection was overruled by the Special  Court.

All the three issues (Set A) in Suit No. 20 of 1994 between the Citi  Bank and the SCB were decided  in favour of the SCB and against the Citi  Bank on 5th/6th July, 1995.  It was held that the liability of the Citi Bank was  not discharged towards the SCB and that the remedy of  SCB was not  against the CMF or its trustees.   It was further held that the liability of the  Citi Bank towards SCB could be discharged only if the SCB had obtained  delivery of the securities as alleged by the SCB in paragraph 8 of its written  statement.             On 7th of July, 1995 issues between Citi Bank  and CMF (Set B) in  Suit No. 20 of 1994 were answered in favour of the Citi Bank and the suit  decreed against CMF.   Issue No.1 was decided in the negative. Issues No.2  to 6 were also answered in the negative because of the absence of any  evidence.  Issues Nos. 7 & 8 were not pressed.  Issue No. 9 was decided in  the negative i.e. against the CMF and in favour of the Citi Bank.  Citi Bank’s  claim against CMF was held to be justified.  CMF was ordered to deliver  Bonds equivalent to the amount mentioned in the SGL to the Citi Bank  along with interest at 11.5% accrued thereon.  Under the Bonds the interest  was payable after every six months.  Since it was not paid, in order to  compensate the Citi Bank for denial of the use of the interest amount  accrued, coupon interest of 20% on the interest accrued was ordered to be  paid.  The trustees of CMF i.e. defendant Nos. 3 to 3G were discharged from  their personal liability.  The decree was made contingent depending upon the

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result in Suit No.22 of 1994 filed by SCB against Citi Bank.  

       Issues in Suit No. 22 of 1994 were answered in the following terms.   Issues Nos. 1 & 2 were answered in the negative i.e. in favour of the SCB  and against the Citi Bank.  It was held that  SCB had a cause of action  against the Citi Bank and the Citi Bank was not discharged of its obligations  towards the SCB.  Issues Nos. 3 & 5 were not pressed.  Issue No. 4 was  answered in the negative.  Issue Nos. 6, 7 and 8 were answered as per order.   SCB’s suit was decreed for Rs.54,07,24,676.93 p. with interest at 20 % per  annum on Rs.44,79,44,864/- from the date of the suit till payment for the  reasons set out in the judgment dated 7th July, 1995 in the issues between  Citi Bank and the SCB in Suit No. 20 of 1994.   

       On 10th of July, 1995 SCB filed an application for dropping  defendants Nos. 2 to 9 (CMF and its trustees) in Suit No.22 of 1994.  This  was opposed by the CMF.  Court permitted the CMF and its trustees  to be  dropped from the array of the parties.    Another fact which needs to be  noticed is that CMF filed Civil Appeal Nos.8248-89 of 1995 against the  orders passed by the Special Court dropping it as a party in Suit No. 22 of  1994 and the decree passed therein.  Both of these appeals were dismissed  by this Court on 18th September, 1995.           Learned Special Judge did not accept the Citi Bank’s plea that there  was a satisfaction accepted and recorded to the original contract between  Citi Bank and the SCB in terms of Section 63 of the Indian Contract Act.   Submission that the original contract to deliver the 11.5% GOI 2009 Bonds  was substituted by the SCB vide their request letter dated 19th September,  1991 and instead to give "SGLs of Canbank Mutual Fund in exchange of the  same" was not accepted on the ground that novation of the contract could  not be there as CMF was not a party and consented to the transfer of their  SGL form in favour of  SCB which was in the hands of Citi Bank.  Submission made by the counsel appearing for the SCB to the effect that  Section 41 of the Contract Act would be more appropriately  applicable was  accepted as the third party (CMF) failed to perform or the Citi Bank failed to  get the promise made by it to be performed by the CMF.  That the SCB by  returning the two BRs did not dispense with or remit the performance of the  promise made by the Citi Bank.  Learned Special Judge gave detailed  reasons for turning down the request of the CMF for issue of chamber  summons as the learned Special Court was of the opinion that there was an  effort on the part of the CMF to get the suit adjourned.

       Before we go to the submissions made before us by the learned senior  counsel for the parties, reference may be made to the entire documentary  evidence present on the record which was referred to and read out  extensively during the course of the hearing. Exhibit ’B’ is the form of   transfer for operation on SGL account dated 27th May, 1991 by Canara Bank  as trustee of Canbank Mutual Fund  and to assign and transfer their interest  and share in SGL by way of 11.5% GOI 2009 Bonds for the sum of  Rs.44,58,05,000/- in favour of Citi Bank.  On presentation of the SGLs by  the Citi Bank to the Reserve Bank of India the same were dishonoured and  returned with an endorsement "insufficient balance" on the face of the form.   The two   Banker’s receipts dated 18th & 19th September, 1991 in the sum of  Rs.42 crores and Rs. 8 crores being the cost of securities/debentures/bonds  of 11.5% GOI 2009 Bonds issued by the Citi Bank and handed over to the  SCB is jointly marked as Exhibit ’A’.  On the reverse of these two receipts  there is a stamp of SCB and signatures of an officer of the bank.  Then there  is a letter dated 19th September, 1991 written by the SCB to the Citi Bank  requesting the Citi Bank to give the SCB SGL’s of Canbank Mutual Fund in  exchange of the two BRs.  On receipt of this letter, Citi Bank handed over  the original SGL forms of 11.5% GOI 2009 Bonds received by it from the  CMF dated 27th May, 1991 face value of which was Rs.44,58,05,000/- and  its own SGL in the sum of Rs.5,41,95,000/- making a total of Rs.50 crores in  return for the two BRs of equivalent amount bearing Nos. 0912611410 &  0912621480 in the sum of Rs. 42 crores and Rs.8 crores.  Then there is  Advocate’s letter of SCB dated 17th June, 1992 addressed to the Manager,

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Citi Bank asking for securities of the face value of  Rs.44,58,05,000/-  instead of SGL of Canbank Mutual Fund of the same amount in the form of  11.5% GOI 2009 Bonds or in the alternative to make payment of the said  amount in respect of the valuable consideration already received by the Citi  Bank.  Exhibit ’D’ is the letter addressed by the Advocates of the Citi Bank   refuting the statement of facts made by in the advocate’s notice of the SCB  dated 17.6.1992.   It was stated that SCB knew that SGLs are not  transferable but in spite of that SCB desired to have SGLs issued by CMF in  favour of the Citi Bank.  Accordingly, SGLs were delivered in exchange of  the two BRs.  That SCB for reasons best known to it and of its own volition  chose to take from Citi Bank the SGL of CMF which was in its possession  in exchange for the two BRs.  The obligation of Citi Bank to physically  deliver the securities ceased/ or was discharged.  The question of handing  over the securities or valuable consideration for the securities, under the  circumstances therefore, did not arise at all.

       Admitted position which emerges from the facts narrated above is that  on 18th September, 1991 and 19th September, 1991 Citi Bank had agreed to  sell  to  SCB 11.5% GOI 2009 Bonds of  the  face value of Rs. 42 crores and  

Rs. 8 crores.   Citi Bank had issued two Banker’s receipts promising to  deliver  the  11.5% GOI 2009 Bonds  when  ready with the stipulation that  on delivery of the Bonds SCB would return the two BRs duly discharged. A  letter dated 19th September, 1991 was written by the SCB requesting the Citi  Bank to give SGL of CMF in exchange of the two BRs (1) Rs.42 crores and  (2) Rs.8 crores issued by the Citi Bank stipulating to give 11.5% GOI 2009  Bonds of that value. The two BRs issued by the Citi Bank were returned to it  by the SCB and SCB accepted the SGL of CMF for the sum of Rs.  44,58,05,000/- and another SGL of the Citi Bank for the sum of Rs.  5,41,95,000/-.  The latter was duly encashed by the SCB and there is no  dispute regarding the same.   

       On the basis of these facts Shri Andhyarujina,  learned senior counsel  appearing for Citi Bank in Civil Appeal No. 7941 of 1995 contended that  SCB on its own asked for and voluntarily accepted the two SGLs from Citi  Bank as satisfaction which it deemed fit in exchange for Citi Bank’s  obligation to deliver the 11.5% GOI 2009 Bonds of the face value of Rs.50  crores under the two BRs. That SCB voluntarily and unconditionally  accepted the SGL of CMF knowing full well that under such SGL it could  not obtain Bonds from PDO.  That SCB accepted the SGL of CMF knowing  full well  that it had been dishonoured by the Reserve Bank of India and it is  not transferable.  That these admitted and established facts clearly bring the  case of Citi Bank under Section 63 of the Indian Contract Act.  That SCB  asked for and accepted the SGL of CMF as satisfaction which it deemed fit  for the obligation of the Citi Bank to deliver GOI bonds of the face value of  Rs.44,58,05,000/- and therefore the Citi Bank stood discharged from its  obligation to deliver the Bonds under Section 63 of the Indian Contract Act.   That the contention of the SCB that SGLs were ’useless or worthless’ was  not tenable as it accepted the dishonoured SGLs of CMF without any protest  and  also received interest from an undisclosed third party thus treating itself  a beneficial owner of SGL which clearly points that SGL was not ’useless or  worthless’ as is being sought to be made out now.  The letter of 8th October,  1991 written to CMF asking to give SGL in favour of SCB also shows that  SCB knew that the securities could not be delivered on the strength of SGL  form taken by it from Citi Bank.  Plea put forth that Citi Bank had given  ’useless or worthless’ SGL by playing a fraud is an after thought after the  unscrambling of the infamous securities scam. Another fact emphasised was  that SCB kept quiet for almost 9 months for which no satisfactory  explanation has been given. That an adverse inference be drawn against SCB  as it had failed to disclose the material facts in the suit and also failed to  explain the delay of 9 months in approaching the Citi Bank.  It is his  contention that the Special Judge fell in error in accepting the contention of  SCB that the present case would be governed by Section 41 of the Indian  Contract Act.  According to him Section 63 of Indian Contact Act would be

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more appropriately applicable. That the Citi Bank as per decree was required  to pay the value of the securities along with interest whereas it has been  given in return the bonds of the face value of Rs.44.8505 crores the value of  which at that time in the market was at a discount and in this process the Citi  Bank incurred a loss of Rs.12,94,66,022.41 p.

       As against this Shri R.F.Nariman, the learned Senior advocate  appearing for the SCB in Civil Appeal No. 7941 of 1995 contended that  an  implied warranty must be read in the transaction asking for and accepting  the SGL of CMF.  Principles of contractual interpretation mandate that  construction placed on the terms be reasonable and consistent with the  natural and probable course of human conduct.  That the courts will not  adopt an interpretation out of context in commercial dealings between the  parties and in a manner unknown to trade and commerce.  That admittedly  SCB had paid Rs.50 crores to Citi Bank for 11.5% GOI 2009 Bonds.  SCB  having established that it did not receive securities worth Rs.50 crores  despite having paid the consideration, the onus to prove novatio and/or  discharge by substitution and/or satisfaction was on the Citi Bank which it  had failed to discharge.  

That in the absence of oral evidence, SCB’s letter dated 19th  September, 1991 to Citi Bank falls for consideration.  This letter does not  state that SCB required ’the dishonoured SGL of CMF in favour of Citi  Bank’.  Admittedly, such an SGL could not have been used by SCB for  delivery of securities.  There is no reason why SCB did or could have asked  for the said SGL.  What SCB wanted was the SGL of CMF in favour of  SCB. That SCB’s letter dated 19th September, 1991 should be interpreted in  the above context and the following points emerge from a plain reading of  the letter and establish that SCB required a SGL of CMF in favour of SCB  and not the one in favour of Citi Bank.   That the BRs were enclosed with  the letter and therefore SCB gave them first and only thereafter received the  SGLs.  The BRs were for Rs.50 crores and not for Rs.44.58 crores; latter  was the value of the SGL of CMF.  By return of the BRs of Rs.50 crores,  SCB cannot be understood to have asked for a dishonoured third party’s  SGL of Rs.44.58 crores.  That the word "SGLs" in plural shows that SCB  did not want the single dishonoured SGL of CMF.  That the words "issued  by you" in the letter referring to Citi Bank’s BR are not followed by the  words "in our favour".  Similarly, SCB’s request for SGLs of CMF is not  followed by the words "in our favour".  The words "in our favour" are  obviously intended in both situations and ought to be read into the letter.   That the letter does not show SCB had knowledge of CMF’s SGL in favour  of Citi Bank.  That the words "in exchange" only shows that SCB was  substituting one "step in aid" for another "step in aid" of delivery of  securities.  That the Citi Bank’s obligation to deliver bonds is nowhere  discharged.  Only the BRs are substituted with SGLs.  Both are merely  promises to deliver bonds.  That the words "SGLs of CMF" only imply that  SCB was willing to look to CMF for performance.  This could have been  achieved only if SGLs of CMF were issued in favour of SCB and bonds  consequently transferred to SCB.  Since the offer of SCB to get performance  by  CMF was not satisfied, the letter does not vitiate Citi Bank’s contractual  obligation to deliver securities to SCB.  That Citi Bank clearly understood  the letter as above i.e. its obligation to deliver bonds continued and did not  cease.  That for this reason Citi Bank gave its own SGL of Rs.5,45 crores  which gave securities to SCB.

       It was next contended that acceptance of the SGLs transfer form was  only a conditional discharge of performance and not as an absolute  discharge.  Relying upon a few reported decisions it was contended that  where a cheque, pronote or banker’s receipt is received or accepted "in  satisfaction", there is a presumption that such acceptance was only as a  ’conditional discharge’ of performance and not as an ’absolute discharge’.   The conditional discharge having failed, the SCB could fall back on the  original consideration.  That Section 63 of the Indian Contract Act was not  applicable.  That mere signatures or endorsement on the BRs, without

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receipt of bonds which the BRs promised, can never discharge the Citi Bank  of its main obligation of delivering the bonds.  That receipt of the interest by  SCB from a third party was of no consequence.  That this point was not  raised by the Citi Bank or the CMF in its submissions made before the  Special Court. This point has also not been taken as a ground in the Citi  Bank’s appeal.  That merely because SCB received some money/interest  from the third party does not lead to an inference that the SCB had  discharged Citi Bank of its obligation to deliver the securities.  He further  argued that in order to do complete justice between the parties the SCB  could be asked to make good the loss if any suffered by the Citi Bank.  The  CMF should not be unduly benefited.  

       Dr. A.M.Singhvi, learned senior advocate, appearing for the SCB in  Civil Appeal No. 8340 of 1995 additionally contended that in case both the  decrees in Suit No. 22 and 20 of 1994 were  reversed, CMF would be unduly  enriched and SCB would lose Rs.45 crores apart from the interest accrued  thereon.  Such a result would be contrary to all notions of justice.  Under the  circumstances irrespective of any view this Court may form, in order to do  complete justice between the parties, in exercise of its power under Article  142 of the Constitution of India the Court should maintain the decree in  favour of SCB and if need be the SCB can be  made to reimburse the Citi  Bank to the extent of Rs.12,94,66,022.41p.  That this Court in exercise of its  power under Article 142, keeping in view the practicality and reality of the  situation, should see to it that nobody is allowed to have its own pound of  flesh unjustly against the other.

       Learned counsel for the parties have been heard at length.

As per stipulation in the BRs the Citi Bank had agreed to deliver  11.5% Government of India 2009 Bonds  when ready "in exchange for this  receipt duly discharged and in the meantime the same will be held on  account of Standard Chartered Bombay."  On the same day, i.e., on  19th  September, 1991 SCB wrote a letter returning the two BRs with a request  "to give us SGLs of Canbank Mutual Fund in exchange of the same".    Stipulation in the BRs was to deliver 11.5% GOI 2009 Bonds  in exchange  of BRs duly discharged;  SCB in exchange of the BRs asked for and  received SGLs of CMF.   Case of  Citi Bank is that BRs are duly discharged  with the result that Citi Bank was relieved of its obligation to deliver the  Bonds under the BRs.  That the SCB substituted the satisfaction referred to  in the BRs (11.5% GOI 2009 Bonds) by asking for and taking the SGL of  CMF.  As against this the case of SCB is that BRs were never discharged.   They were returned to the Citi Bank in exchange of SGL of CMF.  The Citi  Bank was not discharged of its obligation under the BRs to deliver the  11.5% GOI 2009 Bonds.  The first question which needs to be determined is  whether the BRs were duly discharged by the SCB.  The fact that the two  BRs were duly discharged was accepted by the SCB before the Special  Judge.  The judgment in suit 20 of 1994 records this fact as follows:

"46. Mr. Tulzapurkar submitted that it is an  admitted position that in pursuance of this  letter the two Banker Receipts issued by the  plaintiffs were returned to the plaintiffs duly  discharged by defendant No.2 and defendant  No.2 accepted the SGL of Canbank Mutual  Fund and another SGL of the plaintiffs.  The  fact is also not being denied.

50.     Mr. Cooper reiterates that the facts as  set out are admitted."

[Note: Mr. Tulzapurkar was the counsel for  the Citi Bank whereas Mr. Cooper was the  counsel for the SCB in the Special Court.]

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This finding has not been challenged.  Further the return of two BRs  with the stamp of the SCB on its reverse duly signed by the officer of the  SCB also amounts to discharge of the BRs. This was the mode of discharge  of BRs. The discharged BRs being in possession of the Citi Bank would  raise a presumption in law  under Section 114 illustration (i) of the Evidence  Act, 1872 that the BRs stood duly discharged.  Section 114 provides that the  Court may presume the existence of any fact which it thinks likely to have  happened regard being had to the common course of natural events human  conduct and public and private business, in their relation to the facts of the  particular case.  Illustration (i) provides that Court may presume ’that when  a document creating an obligation is in the hands of the obligor, the  obligation has been discharged’. The two BRs were in the custody of the Citi  Bank.  The possession of two BRs with the Citi Bank would raise a  rebuttable presumption of discharge of the two BRs.  Onus to rebut the  presumption was upon the SCB.  SCB has failed to rebut the presumption by  leading any evidence that the obligation under the two BRs did not stand  discharged.   Finding recorded by the Special Court that there was nothing  on the record to show that there was an absolute discharge granted by the  Citi Bank to the SCB cannot be accepted because the two BRs were returned  with the stamp of SCB duly signed by an officer of the SCB authenticating  that it had been discharged.  

What is the effect of production of documents by promissor from its  custody was considered in Chaudhri Mohammad Mehdi Hasan Khan Vs. Sri  Mandir Das, [L.R. 39 Indian Appeals 184].  In the said case, a suit was filed  on the basis of mortgage deed for the recovery of Rs. 62,000/- by way of  sale of the mortgage premises.  At the time of institution of the suit the  plaintiff produced only a copy of the document, alleging that the original had  been lost.  The defendant in his written statement admitted the execution of  the document but alleged that the debt has been discharged.  In support of  this allegation he produced the original document containing the  endorsement of payment by the plaintiff.  The Privy Council overruling the  decision of the Judicial Commissioner held that in view of the presumption  under Section 114 of the Evidence Act the onus was upon the plaintiff to  show that the debt was still subsisting which the plaintiff had failed to  discharge by producing any evidence.  It was held that production of the  document by the defendant from his custody raised a rebuttal presumption of  the discharge of the debt.  

In our view, the law has been correctly stated  in the aforesaid case  and applying the same ratio, we hold that production of two BRs by the Citi  Bank raised a rebuttable presumption that Citi Bank had discharged its  obligation under the two BRs which the SCB failed to dislodge by  pleading/leading any evidence to show the circumstances under which the  two BRs were returned.  In  the absence of any explanation by the SCB  either in its plaint in Suit No. 22 of 1994 or the written statement filed by it  in Suit No. 20 of 1994 whatsoever as to why it had asked for and took  dishonoured SGL of CMF in exchange of two BRs raises a presumption  under Section 114, illustration (i) that Citi Bank was discharged of its  obligation under the BRs i.e. to deliver the Bonds.

SCB, in its plaint in Suit No. 22 of 1994 or in the written statement  filed by it in Suit No. 20 of 1994, failed to gave any explanation whatsoever  as to why it had asked for and taken  dishonoured SGL of CMF which could  not have given it any security.  It did not plead or give evidence as to why it  accepted "useless or worthless SGLs", as stated by it in its plaint, when it  knew that it would not be even transferable.  SCB has not disclosed any  particular or even the name of the person from whom or the circumstances  under which it obtained interest for half year in the sum of Rs.  2,56,33,787.50 on 25th November, 1991 on the bonds of the value of  Rs.44,58,05,000/-.  It is not SCB’s case that the interest was either received  from the Citi Bank or the CMF or from Government of India or from a  person actually holding the Government of India bonds who may have paid  the interest to SCB after receiving it from the Government of India.  Shri  

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Andhyarujina is right in submitting that on the facts and in the circumstances  an adverse inference should be drawn against the SCB to the effect that if  these facts were disclosed it would have been proved  that SCB had taken  the SGL of CMF for its own benefit or at the behest of the third person from  whom it had received the interest.  That third person treated the SCB as the  beneficial owner of Bonds and therefore entitled to interest on it.

Illustration (g) of Section 114 of the Indian Evidence Act provides  that Court may  presume ’that evidence which could be and is not produced  would, if produced, be unfavourable to the person who holds it’.  Privy  Council in  T.S. Murugesan Pillai Vs. M.D. Gnana Sambandha Pandara  Sannadhi & Ors.,  [AIR 1917 PC 6], held:  

"A practice has grown up in Indian  procedure of those in possession of importance  documents or information lying by, trusting to the  abstract doctrine of the onus of proof, and failing  accordingly to furnish to the courts the best  material for its decision.  With regard to third  parties, this may be right enough; they have no  responsibility for the conduct of ,the suit; but with  regard to the parties to the suit it is, in their  Lordship’s opinion, an inversion of sound practice  for those desiring to rely upon a certain state of  facts to withhold from the court the written  evidence in their possession which would throw  light upon the proposition...."  

This passage was cited with approval of this Court in Biltu Ram Vs.  Jainandan Prasad,  Civil Appeal No. 941 of 1965, decided on 15.4.1968, and  again in Gopal Krishnaji Ketkar  Vs. Mohammed Haji Latif & Ors., [AIR  1968 SC 1413] in which it was held:  

"...Even if the burden of proof does not lie  on a party the Court may draw an adverse  inference if he withholds important documents in  his possession which can throw light on the facts at  issue.  It is not, in our opinion, a sound practice for  those desiring to rely upon a certain state of facts  to withhold from the Court the best evidence  which is in their possession which could throw  light upon the issues in controversy and to rely  upon the abstract doctrine of onus of proof."  

An adverse inference has to be drawn against the SCB.  Had the facts  referred to in the previous paragraph been disclosed, it would have proved  that SCB had taken the SGL of CMF for its own benefits or at the behest of  the third person from whom it had received the interest.  Failure on the part  of the SCB to show from whom it had received the interest would raise a  presumption that the SCB had failed to disclose/produce a material piece of  evidence which would have thrown much light on the issue in controversy.   

       Contention raised by Shri Nariman that there was only one contract  between  SCB and Citi Bank and that was to deliver the 11.5% GOI 2009  bonds for which it had paid valuable consideration or that the BRs issued by  the Citi Bank were not independent of the main contract to supply 11.5%  GOI 2009 bonds cannot be accepted.  SCB had taken the SGLs of Canbank  with the clear intention that it wanted to exchange the BRs of Citi Bank with  SGLs of Canbank.  SCB was to get 11.5% GOI 2009 Bonds in exchange of  two BRs but SCB instead substituted that satisfaction by asking for and  taking unconditionally the SGL of CMF.  The obligation to deliver the  bonds under BRs, in our opinion, was substituted by delivery of SGL of  CMF.  

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The BRs are dated 18th and 19th September, 1991, respectively, and on  19th September, 1991 the SCB wrote a letter returning the two BRs and  asking of SGLs of Canbank Mutual Fund from the Citi Bank.   Proximity of  these two dates, clearly indicates that the intention of the SCB was to buy  the SGLs of Canbank Mutual Fund otherwise they would not have written  the letter on 19th September, 1991 itself.  Proximity of these two dates and  the manner in which whole transaction was completed indicates that it was  done with a purpose or a design.  It has not been explained as to how did  SCB know that the Citi Bank had in its possession the SGL of  CMF.  SCB  must have known, being a big banking business company, that the SGL  issued by the CMF in favour of the Citi Bank was non-transferable.  It could  not provide any security to them.  It had also been dishonoured.  Still SCB  asked for and accepted the dishonoured SGL of CMF.  If the SGL given to  them by the Citi Bank was ’useless’ and ’worthless’ then why did SCB  gladly accept the same without any protest.  If it was their case that the SGL  of CMF given to them was ’useless’ or ’worthless’ it should have refused to  accept it; far from doing so, the SCB not only accepted it but also acted upon  it.  It received interest from the third party. It has not been explained as to  why third party paid interest of the SCB.  Basically, it was for the SCB to  explain and answer all these questions which it has failed to do.

       SCB in its letter dated 8th October, 1991 wrote to CMF that SCB had  bought from Citi Bank 11.5% GOI 2009 Bonds  in the sum of Rs. 50 crores,   for which, the Citi Bank gave its two BRs.  Significantly, it was stated in the  letter - "We understand that the same stock has been sold by you to Citi  Bank.  Therefore, we returned their BRs in exchange of your SGL for Rs.  44,58,05,000.  We now request you to issue a fresh SGL in our favour for  the same amount to enable us to lodge it urgently." This clearly indicates  that SCB has taken the SGL of Canbank with the clear understanding that it  wanted to exchange the BRs of Citi Bank with SGLs of Canbank.  The  argument now raised that SCB only wanted 11.5% GOI 2009 Bonds is  belied by this letter.  It is specifically stated in this letter that it had known  that Canbank had given its SGL in favour of Citi Bank which the SCB  wanted to secure.  In order to secure it, it had returned the BRs in exchange  of SGL of Canbank in the sum of Rs. 44,58,05,000.   It asked the CMF to  issue fresh SGL in their favour of the same amount to enable it to lodge it  urgently.  This letter clearly indicates that the SCB wanted the SGL of CMF  and it had exchanged it with the two BRs knowingly, consciously and  voluntarily.  The submission now made that SCB at all point of time was  insisting on the delivery of 11.5% GOI 2009 Bonds cannot be accepted.   Though this letter has not been formally proved as the same has been denied  by the CMF but since this was pleaded by the plaintiff-SCB  and the  document was attached with the plaint, SCB cannot disown this document.   It is bound by its own case set up in the Court.

In the face of letter dated 19th September, 1991 written by the SCB to  the Citi Bank asking for the SGLs of Canbank Mutual Fund in exchange of  BRs and the subsequent letter dated 8th October, 1991 written by the SCB to  the CMF to issue fresh SGLs in their favour of the same amount clearly  indicates that the SCB substituted its satisfaction in place of 11.5% GOI  2009 Bonds for and taking unconditionally SGL of CMF.   

In their letter dated 17th June, 1992 the SCB did not say that a trick or  fraud had been played on them by delivering useless and worthless  dishonoured SGL as has been pleaded by it in its plaint or argued before us.  Contrary to that it was stated in the letter:    

"Our clients returned the aforesaid two Bank  Receipts and in exchange for the same you  gave to our clients (a) your SGL for Rs.  5,41,95,000/- and (b) a SGL of Canbank  Mutual   Fund  for  Rs. 44,58,05,000/-  drawn  in  your  favour.  We  understand that  when the aforesaid SGL for  Rs.44,58,05,000/- had been presented by

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you earlier on 27th May 1991 the same was  dishonoured by the Reserve Bank of India.   Our clients accepted documents at (a) and  (b) above..."

                            [emphasis supplied]

The words "our clients accepted documents A and B" clearly indicate that  the SGLs were accepted in the exchange of two BRs without any protest  thereby relieving the Citi Bank of its liability to give the 11.5% GOI 2009  Bonds.  Another point which needs to be highlighted from this letter is that  the Citi Bank  feigned its ignorance of having written the letter dated 19th  September, 1991 asking for the SGL of CMF in exchange for two BRs.  It  has not been denied that such a letter was written but it was stated:

"...We note that you have failed to produce  a copy of this letter, but even assuming that  it exists we fail to see how this carries the  matter further as the debt owed to our clients  is not affected."

 Nothing hinges on it but this just shows as to how their mind was working.   

Citi Bank has pleaded and contended that as SCB had of its own,  asked for and taken unconditionally the SGL of CMF and returned the two  BRs of Citi Bank duly discharged.  It was under no obligation to either pay  any sum or any security much less the refund the money. The obligation was  substituted by the SCB for delivery of SGL of CMF.  The SCB substituted  the obligation to deliver the bonds under two BRs by delivery of SGL  thereby accepted the satisfaction in terms of Section 63 of the Indian  Contract Act.

In the light of  these facts, let us now consider the effect of Section 41,  62 and 63 of the Indian Contract Act, 1872. The same are reproduced  hereunder for ready reference:

"41. Effect of accepting performance  from third person.- When a promisee  accepts performance of the promise from a  third person, he cannot afterwards enforce it  against the promisor."

"62.  Effect of novation, rescission, and  alteration of contract.- If the parties to a  contract agree to substitute a new contact for  it, or to rescind or alter it, the original  contract need not be performed."

"63. Promise may dispense with or remit  performance of promise.- Every promisee  may dispense with or remit, wholly or in  part, the performance of the promise made  to him, or may extend the time for such  performance, or may accept instead of it any  satisfaction which he thinks fit."

       In para 63 of the judgment, the Special Court has recorded a finding to  the effect:

"In this case the third party i.e. Canbank  Mutual Fund had not consented to the SGL  transfer form being transferred.  Therefore,  there is no discharge under alleged contract

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and there is no Novatio."

       Novatio, rescission or alteration of a contract under Section 62 of the  Indian Contract Act can only be done with the agreement of both the parties  of a contract.  Both the parties have to agree to substitute the original  contract with a new contract or rescind or alter.  It cannot be done  unilaterally.  Special Court was right in observing that Section 62 would not  be applicable as there was no novatio of the contract. Further it is neither  Citi Bank’s nor CMF’s case nor even SCB’s case that there was a tripartite  arrangement between the parties by which CMF was to accept  the liability.  Such a case of novatio does not arise for consideration.  Shri Andhyarujna,  the learned senior counsel for Citi Bank has also not seriously pressed for  the Citi Bank’s case being considered by reference to Section 61 abovesaid.  

       Citi Bank pleaded in paras 8 & 9 of its plaint (in Suit No.22 of 1994)  that it was discharged of its obligation to deliver the bonds on the delivery of  SGLs of CMF to SCB at its own request and therefore ceased to be liable to  SCB in respect of the agreement  to deliver 11.5% GOI 2009 bonds. Learned  Special Court in para 62 held that there was no unconditional discharge  pleaded by the Citi Bank and for this reliance was placed on the contents of  para 9 of the plaint.  In para 9 Citi Bank has stated that SGLs of CMF were  taken by the SCB voluntarily and unconditionally at their own request and  returned the BRs issued by the Citi Bank, duly discharged, and, therefore,  the remedy of the SCB, if any, is against the CMF or its trustees and not  against the Citi Bank.  That the Citi Bank was filing the suit to safeguard its  interest so that in the event a decree is passed against the Citi Bank in the  suit filed by the SCB then the Citi Bank will be entitled to claim relief  against the CMF.  It is true that Citi Bank in para 9 has not pleaded complete  discharge from its obligation but the Special Court failed to consider the  averments made in para 8 of the plaint which categorically raises the plea  that liability of the Citi Bank to deliver the bonds stood discharged and Citi  Bank ceased to be liable to SCB.  It is stated in this paragraph that the SGLs  of CMF were handed over to SCB at their own request on return of the two  BRs, duly discharged, which completely discharges the Citi Bank and the  Citi Bank ceased to be liable to the SCB to deliver 11.5% GOI 2009 bonds.   The averment is to the following effect:

"In the premises, the liability of the plaintiffs to  deliver the said securities stood discharged and the  plaintiffs ceased to be liable to the defendant No.2  in respect of the agreement mentioned in para 7  above."  

       It is true that Citi Bank in its plaint did not specifically mention  Section 63 of the Indian Contract Act but overall reading of the plaint makes  it clear that Citi Bank was relying upon the terms of Section 63 in pleading  that it stood discharged of its obligation to deliver the bonds under the two  BRs on the delivery of SGL of CMF.

       Under Section 63, unlike Section 62, a promissee can act unilaterally  and may i)      dispense with wholly or in part, or ii)     remit wholly or in part,  the performance of the promise made to him, or iii)    may extend the time for such performance, or  iv)     may accept instead of it any satisfaction which he thinks fit.

It is Citi Bank’s case that SCB of its own asked for and voluntarily  accepted two SGLs from Citi Bank as  satisfaction which it deemed fit in  exchange for the Citi Bank’s obligation to deliver GOI bonds of the face  value of Rs.50 crores under the two BRs.  Such a plea would fall under  Section 63.  Special Court concluded that provisions of Section 41 of the  Contract Act would be applicable to the facts of the case because the CMF  had failed to deliver the GOI’s bonds to the SCB and, therefore, the SCB  could claim it from the Citi Bank.  In our opinion, the Special Court fell in

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error in applying Section 41 of the Indian Contract Act to the facts of the  case.  Section 41 of the Indian Contract Act only provides that the promisee   cannot have double satisfaction of its claim i.e. from the promisor  as well as  third party.  It does not give a cause of action to the promisee, but, to the  promisor, to contend that the promisee who has accepted satisfaction from  the third party cannot insist of the satisfaction of its claim from the promisor  as well.  No case under Section 41 of the Contract Act has been pleaded by  the Citi Bank.  It no where pleaded that CMF had delivered the bonds to  SCB and, therefore, SCB cannot enforce its demand for delivery of bonds  against the Citi Bank.  Privy Council in Har Chandi Lal and Others vs.  Sheoraj Singh and others [AIR 1916 PC 68] held that Section 41 of the  Contract Act applies only where a contract has in fact been performed by  some person other than the person bound thereby.    What is required by  Section 41 is actual performance of the original promise and not a  substituted promise.  In Chegamull Suganmull Sowcar vs. V.Govindaswami  Chetty & Others, [AIR 1928 Mad. 972], it was held that actual performance  has to be there for importing the applicability of Section 41. It was held:

"...Much more than a bare promise is  necessary under the Section. What is contemplated  is actual performance of the original promise.   According to the section, performance "by a  stranger, accepted by the promisee, produces the  result of discharging the promisor, although the  latter has neither authorised nor ratified the act of  the third party..."

The learned Special Court fell in error in holding that Section 41 of  the Contract Act would be more appropriately applicable.  Section 41 for the  reasons set out above would not be applicable to the facts of the present  case.  It also fell in error in holding that Citi Bank did not plead complete  discharge from performing its obligation in terms of Section 63.  In our  opinion, Citi Bank has specifically pleaded that it stood discharged from the  performance of the original obligation on the delivery of SGLs to the SCB,  which were asked for and accepted by SCB for reasons best known to it.   SCB instead of the original satisfaction accepted another satisfaction,  deemed fit by it, in terms of Section 63 of the Indian Contract Act.   Contention of Shri Nariman, learned senior counsel appearing for the  SCB is that there has been only one contract between the Citi Bank and the  SCB and that is to give 11.5% GOI 2009 Bonds  for which the SCB had paid  valuable consideration to the Citi Bank.  That BRs are not independent of  the contract.  As the bonds were not ready with the Citi Bank it gave instead  the BRs with the  understanding that bonds would be handed over as and  when available.  SGL of CMF were taken by the SCB as a step-in-aid for the  delivery of bonds.  The acceptance of SGL of CMF should not be taken as  satisfaction in substitution to deliver the bonds as had been agreed upon  originally. It was contended that implied warranty must be read in the  transaction asking for and accepting of SGL of CMF.  That principles of  contractual interpretation mandate that interpretations adopted be   reasonable and arise out of natural and probable course of human conduct.   The courts will not adopt an interpretation out of context with the  commercial dealings between parties and in a manner unknown to trade and  commerce. SCB has established that it did not receive the bonds in spite of   having paid full consideration, heavy burden should be put on the Citi Bank  to show that it has discharged its original obligation by substituting it with  supply of SGL of CMF to the SCB.  That it would be contrary to the normal,  natural and probable course of banking business to deduce that SCB would  be satisfied with neither the bonds nor the monies thereof, but with SGLs  which admittedly had no value or significance.   According to him the  interpretation put on the letter dated 19th September, 1991 be interpreted in a  commercial sense so that it serves the commercial purpose.  To substantiate  this, he placed reliance upon paragraphs 777, 782, 921, 951, 952, 953 and  955 of  Halsbury’s Laws of England, 4th Edition, Vol. 9,  wherein it has been  observed that the courts can interpret the mercantile contracts in a way that it

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makes good commercial sense or to give efficacy to a contract to emancipate  one side from all the chances of failure, and to make each party to perform  its parts of the promise.  He has relied upon certain observations made in  Hillas & Co. Ltd. vs. Arcos Ltd. [1932 All ER 494], Investors Compensation  Scheme Ltd. vs. West Bromwich Building Society [1998 (1) All ER 98],  Stocznia Gdanska SA vs. Latvian Shipping Co. & Others [1998 (1) All ER  883], Antaios Cia Naviera SA vs. Salen Rederierna AB [1984 (3) All ER  229] and Union of India vs. D.M.Revri & Co. [1977 (1) SCR 483 at 487].   We do not find any merit in this submission.

       SCB soon after the payment of Rs. 50 crores and receiving the  BRs from the Citi Bank acknowledging its liability to deliver the bonds  writes a letter dated 19th September, 1991 asking for and accepting the SGL  of CMF.  Admittedly, SGL of CMF was not honoured by the PDO twice and  an endorsement to that effect had been made on the SGL.  As to why a  creditor  like  SCB had asked for and accepted the instrument which was on  the face of it unrealizable from the  debtor which is even described by it as  ’useless and worthless’?  It owed a duty of explanation to the Court as to  why did it ask for or accepted the delivery of such an instrument.  SCB has  conspicuously and completely failed to give any explanation either in its  plaint or even in evidence.  It is difficult to import an implied condition or  warranty, as was sought to urged at the hearing, in the absence of such an  explanation by the SCB.  Contention that the words "in our favour" be read  as introduced by necessary implication in the SCB’s request for SGL of  CMF and the expression - "We now request you to give us SGLs of  Canbank Mutual Fund in exchange of the same" be read as "We now request  you to give us SGLs of Canbank Mutual Fund in our favour in exchange of  the same" to give it a commercial sense cannot be accepted.  Such a re- writing of SCB letter of request of 19th September, 1991 and imposing a  qualification in the acceptance of the Canbank SGL by SCB is not  permissible.   The clear intention of SCB was to ask for and take the SGL of  Canbank which was in possession of the Citi Bank.  The said SGL was in  favour of Citi Bank. SCB as a business house was clearly aware of the terms  of an SGL of CMF from Citi Bank when it asked Citi Bank for it and  accepted and retained it.  For getting the SGL of CMF in its own favour it  need not have routed its request through the Citi Bank.  It could have straight  away  approached the Canbank for either buying the 11.5% GOI 2009 Bonds  in its favour or for getting the SGL of CMF drawn in its favour.  A term can  only be implied by way of sense to give efficacy to the transaction which is  intended by the parties.  Implied terms in law are founded on the presumed   intention of the parties.  In this case, the intention of the SCB was clear and  unambiguous. SCB for its own reasons wanted to take the SGL of CMF in  possession of the Citi Bank. The subsequent receipt of interest on the face  value of the price of bonds mentioned in the SGL is clear pointer to the fact  that the SCB had taken the SGL of CMF from Citi Bank for its own purpose  or at the behest of an undisclosed third party who paid interest to SCB.  In  the absence of any explanation as to how the SCB knew that Citi Bank was  in possession of SGL of CMF; as to why it had asked for an instrument  which on the face of it was unrealizable by it from the debtor; why did it  accept and act upon the same, and, further treating itself as a beneficial  owner and receiving interest on it, the implied condition or warranty such as  it sought to be urged on behalf of SCB cannot be imported in the transaction.   The plea of implied warranty is one made in desperation and is clearly an  after thought.

The plea of implied warranty is also negated by the fact that SCB had  pleaded in its plaint in Suit No. 22 of 1994 that Citi Bank has "expressly and  impliedly warranted to SCB that Canbank would on the SCB’s request  transfer the stock"   Issue No. 3, namely,  "Whether Defendant No. 1 gave  any express or implied warranty of the nature alleged in para 13 of the  plaint." was framed on this plea.  The onus of proving this issue was on the  SCB.  Far from adducing any evidence the SCB simply instructed its counsel  to not to press the issue. Thus the plea of implied warranty was expressly  given up before the Special Court.   It is not open to SCB to take up the plea  of express or implied warranty now before us in the appeal.

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Since on facts we have found that the SGL of CMF were taken by the  SCB voluntarily knowing and understanding the consequences flowing from  it and the fact that plea of express or implied warranty was given up before  the Special Court, we are unable to accept the contention of  Shri Nariman  that there was an implied condition/warranty by the Citi Bank to give the  Bonds on the SGL being dishonoured.

It was next contended by Shri  Nariman that the acceptance of SGL of  Canbank by SCB was a conditional discharge.  Actual delivery of 11.5%  GOI 2009 Bonds could only discharge the liability of the Citi Bank and not  the mere delivery of SGL.  On failure to get the 11.5% GOI 2009 Bonds or  return of the amount paid the SCB could fall back and sue on the original  consideration.  For this he placed reliance on  Brijbhusan Pande & Ors. Vs.  Ramjanam Kuer,  AIR 1932 Patna 324, Parman Nand & Anr. Vs. Saliq Ram  & Ors., AIR 1926 Lahore 328, Ramdayal Vs. Maji Devdiji, AIR 1956 Raj.  12,  Lingam Narayan Das Vs. Punia Das, AIR 1959 Orissa 176,  Subramniam Chettiar Vs. Muthiah Chettiar (died) & Ors., AIR 1984 Madras  215.  In Parman Nand & Anr. Case (supra) it was held that it was a question  of fact to be decided in each particular case as to whether the parties  intended the subsequent Hundi to be an absolute or conditional payment of  the original debt.  On the facts of the case the learned Judges came to the  conclusion that Hundis were given as a conditional payment of the original  debt and therefore the plaintiffs  could revert to the original consideration  and based a claim thereon. In Brijbhusan Pande & Ors and Lingam Narayan  Das  cases (supra) the name of the payee was not mentioned in the  promissory note.  It was held that in the absence of the name of the payee in  the promissory note the document was not a promissory note and therefore  no decree could be passed on the basis of such an instrument.  Where a  plaintiff sues on a defective headnote, then,  on the failure of the headnote  the plaintiff was entitled to sue on the loan itself.   In Lingam Narayan Das   case (supra) it was held that where a creditor takes a bill, note or cheque in  payment he may either accept it in complete satisfaction of the debt, or may  accept as a conditional payment only.   The presumption in the absence of a  clear indication to the contrary is, that the payment by means of bill, note or  cheque is a conditional payment only.  The defendant upon whom the  burden lay of establishing such an intention did not choose to lead any  evidence on the point and in the absence of any material on the record It was  not possible to come to the conclusion that there was such an intention. In  Subramniam Chettiar case (supra) the facts were that defendant executed  two pronotes A and B and subsequently executed third pronote C for a sum  which was total of A and B and endorsing on A and B that in view of C the  sums due under A and B have been discharged.  Pronote C was  insufficiently stamped.  It was held that instrument C was invalid and  inadmissible in evidence and therefore the promisee could rely on the  original cause of action and claim the recovery of the amount.  None of these  cases would be applicable to the facts of the present case.

It is well settled that where an instrument, a cheque or negotiable  instrument, is given by the debtor and accepted by the creditor , the question  whether the instrument was taken as an absolute payment or a conditional  payment is one of the fact depending on the intention of the parties.  When  the creditor takes an instrument by way of absolute satisfaction of the debt  then the creditor cannot fall back on the original transaction and is restricted  to the terms of that instrument only.   In the present case the SCB asked for  and accepted an SGL of Canbank payable to the Citi Bank in absolute  satisfaction of the Citi Bank’s original obligation to give to SCB bonds of  the face value of Rs. 44.58 crores.  SCB asked for the SGL of Canbank  which was in possession of the Citi Bank and accepted the same voluntarily  and unconditionally indicating to the fact that SGL was taken as satisfaction  deemed fit within the meaning of Section 63 of the Contact Act.  There was  no intention of the parties that taking of the SGL was conditional, i.e., that if  SCB did not get the bonds from CMF, the SCB would hold Citi Bank liable  for the bonds.   Under the circumstances, the authorities cited by the SCB of  conditional acceptance of the pronote are not applicable.

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Shri Nariman also contended that asking for and acceptance of SGL  from the Citi Bank is not proof of acceptance of the condition that SCB had  given up its claim for the original consideration.  For this he placed reliance  on Firm Basdeo Ram Sarup vs. Firm Dilsukharai Sewak Ram [AIR 1922  Allahabad 461], Shyamnagar Tin Factory Private Ltd. vs. Snow White Food  Product Co. Ltd. [AIR 1965 Cal. 541] and Union of India vs. Narayan Lall  [AIR 1953 Patna 152].   In Firm Basdeo Ram Sarup’s case and in  Shyamnagar Tin Factory Private Ltd.’s case the debtor sent the money on  the terms that it is to be taken in satisfaction of a larger claim towards the  total amount due and would not be entitled to the balance of the amount.   Creditor accepted the cheque and thereafter filed the suit for the balance  amount.  It was held that sending of a cheque for a smaller  amount along  with a letter to the effect that it was in full and final settlement  of the debt  did not amount to a discharge of the entire debt, nor does it amount to  payment or tender of the amount on any condition that acceptance of the  amount is in full and complete discharge of the entire debt.  Acceptance of  the cheque was not conclusive in law.  The entire matter was a question of  fact which the court has to determine keeping in view the true character of  the transaction.  It would be seen that in these two cases the debtor had sent  the cheque unilaterally  and it was not the creditor who had either remitted  or accepted the lesser amount in satisfaction of the entire amount. Section 63  of the Indian Contract Act, as was rightly held, did not have any  applicability in such cases. Similarly in Union of India’s case (supra) the  railways in order to meet the claim of the plaintiff by damages for non- delivery of railway consignment sent a cheque for lesser amount with an  express stipulation in the letter accompanying the cheque that in case the  plaintiff was not prepared to accept the amount he should  return the cheque,  but, the plaintiff encashed the cheque and brought the suit against the  railways for the balance amount.  Plea of the railways that acceptance of the  lesser amount was evidence  of accord and satisfaction was not accepted  and, in our view, rightly so.  The principle applied was the same as in the  earlier two cases, referred to above.  In the present case, as stated in the  foregoing paragraphs, the SCB had substituted its original satisfaction by  asking for and taking the SCB of CMF as deemed fit for its own reason  which have not been disclosed to the Court.  The cases cited by Mr. Nariman  referred to in this paragraph under the circumstances would have no  applicability.  

       SCB’s next submission is that even if the court comes to the  conclusion that as a matter of fact  Citi Bank is discharged under Section 63  of the Contract Act, the decree should not be reversed and should only be  modified by this Court in exercise of its special jurisdiction under Article  142 to do complete justice between the parties.  In case both the decrees in  Suit No.20 of 1994 and 22 of 1994 are reversed, CMF would be unjustly  enriched and SCB would lose Rs. 45 crores with interest and such a result  would be contrary to all notions of justice.  It was contended that  irrespective of any view this Court may take on documents, the Court has  the power to do complete justice between the parties under Article 142 of the  Constitution of India   by maintaining the decree in favour of SCB. That  even if the court comes to the conclusion that decree in favour of SCB is  liable to be set aside, it need not direct setting aside of the decree but may  instead do substantial and complete justice between the parties by giving  appropriate directions.  We do not find any substance in this submission.  Suit No. 22 of 1994 and Suit No. 20 of 1994 were back to back suits and the  enforcement of decree in Suit No.20 of 1994 was contingent upon a decree  being passed in Suit No.22 of 1994. Acceptance of the submission of the  SCB would be that this court would be passing a decree against CMF  indirectly.  Result would be that the amount received by Citi Bank from  CMF would be allowed to be retained by SCB, despite the fact that SCB’s  suit did not succeed.  SCB’s contention is based on the presumption that  SCB had received neither securities nor money and on the other hand CMF  has received the money and has unjustly enriched itself.  CMF in both the  suits has not only denied the allegations to this effect but has in fact pleaded  a specific case to the contrary.  Once the court comes to the conclusion that

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Citi Bank has discharged its obligation under Section 63 of the Indian  Contract Act then there is no warrant or justification on the part of the Court  to pass any order or decree or maintain a decree in favour of SCB.  Suit No.  20 of 1994 is a contingent suit and, therefore, the said suit is not even liable  to be tried much less decreed, if it is found that Citi Bank has discharged its  obligation and is not liable to SCB. The submission of SCB that since a  decree has been passed in the contingent suit, to the extent of decretal  amount paid in the contingent decree, SCB’s suit should be decreed cannot  be accepted.  Firstly it is to be decided in SCB’s own suit (22 of 1994)  whether it is entitled to a decree or not.  If that suit is dismissed then the  question of passing any decree in Suit No.20 of 1994 which is a contingent  suit would not arise.  Acceptance of the submission of the SCB would mean  that though SCB’s suit does not deserve to succeed but still it be maintained  by passing a decree in the contingent suit which cannot be done.  It would be  travesty of justice rather than doing justice.  The submission is, therefore,  rejected.                                        

For the reasons stated above Civil Appeal No.  7941 of 1995 filed by  the Citi Bank is accepted.  Judgment and decree passed by the Special Court  in Suit No. 22 of 1994 is set aside and the suit is ordered to be dismissed  with costs throughout.

As a consequence to the aforesaid, Citi Bank becomes entitled to  restitution of the total amount paid by it to Standard Chartered Bank  (principal and interest) along with interest @ 12% p.a. from the date of  receipt of payment by SCB provided  it is paid on or before 30th November,  2003 and in default to pay the interest @ 15% p.a. from the date of receipt of  payment till it is repaid by the Standard Chartered Bank.  The Citi Bank  would also be entitled to receive back the amount of costs it had paid to  Standard Chartered Bank under the decree of the Special Court but the same  would not carry any interest.  Though the appellant had prayed that the  interest be granted at the same rate at which it was granted by the Special  Court (i.e.20% p.a.) but we have reduced the same keeping in view that  interest rates have come down substantially in the recent years.

Costs in this appeal are assessed at Rs. 40 lakhs.  Citi Bank would also  be entitled to the costs before the Special Court of the equivalent amount  which were awarded against it by the Special Court while decreeing the suit  against it. Civil Appeal No. 8340 of 1995

This appeal has been filed by the CMF against the decree passed  against it in Suit No. 20 of 1994.  In Civil Appeal No. 7941 of 1995 we have  recorded a finding that Suit No. 20 of 1994 filed by the Citi Bank was a back  to back suit to save itself in case a decree was passed against it in the suit  filed by the Standard Chartered Bank in Suit No. 22 of 1994.  In other  words, it was a  contingent suit based on the result in Suit No. 22 of 1994.   Mr.  Kapadia, learned senior counsel appearing for the CMF had addressed  arguments at length supporting the submissions made on behalf of Citi Bank  against the Standard Chartered Bank.  He did not say much against the  decree passed in favour of the Citi Bank.  We need not deal with the  contentions raised by Mr. Kapadia as we have accepted the Civil Appeal No.  7941 of 1995 and set aside the decree passed against the Citi Bank in Suit  No. 22 of 1994.  The consequence of the acceptance of the said appeal  would be that this appeal has to be accepted which arises from a contingent  suit. Accordingly, the appeal filed by the CMF is accepted and the decree  passed against it in Suit No. 20 of 1994 is set aside and the suit is ordered to  be dismissed with costs throughout.

As a consequence to the aforesaid CMF becomes entitle to restitution  of the total amount paid by  it to the Citi Bank (principal and interest) along  with interest @ 12% p.a. from the date of payment provided  it is paid on or  before 5th December, 2003 and in default to pay the interest @ 15% p.a.  from the date of payment till it is repaid by the Citi Bank. Though the  appellant had prayed for interest @ 20% p.a.(which had been awarded by the

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Special Court) but we have reduced the same keeping in view that interest  rates have come down substantially in the recent years.  In Civil Appeal No.  7941 of 1995 also we have granted interest @ 12% p.a. only.

The CMF would be entitled to receive the amount of costs it had paid  under the decree of the Special Court but without interest. Costs in this  appeal are assessed at Rs. 20 lakhs. CMF would be entitled to the costs  before the Special Court of the equivalent amount which were awarded  against it by the Special Court while decreeing the suit against it.  

Both the appeals stand allowed in the aforesaid terms.