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PETITIONER: HITEN P.  DALAL

       Vs.

RESPONDENT: STARDARD CHARTERED BANK AND OTHERS

DATE OF JUDGMENT:       18/04/2000

BENCH: R.P.Sethi, B.N.Kirpal

JUDGMENT:

KIRPAL, J.

     The   Reserve  Bank  of   India  noticed   large-scale irregularities and mal-practices in transactions in both the Government  and other securities indulged in by some brokers in  collusion  with  the  employees  of  various  banks  and financial   institutions.   The   said  irregularities   and mal-practices  had  led to the diversion of fund from  banks and  financial  institutions to the individual  accounts  of certain brokers.

     With  a  view  to  deal with  this  situation  and  in particular  to  ensure speedy recovery of the  huge  amounts involved,  the Special Court (Trial of Offences relating  to transactions  in securities) Ordinance, 1992 was promulgated on 6th June, 1992.  The said Ordinance has now been replaced by an Act known as Special Court (Trial of Offences Relating to  Transactions  in  Securities)   Act,  1992  (hereinafter referred to as the Act).  Section 3 of the Act enables the Central  Government to appoint one or more Custodian for the purposes  of  the Act.  The Custodian has power  under  sub- section  2 of Section 3 to notify the name of any person  in the  official gazette, who has been involved in any  offence relating  to transactions in securities after the first  day of  April, 1991 and on/or before 6th June, 1992.  The effect of  a  person  being  so  notified  was  that  according  to sub-section  3  of  Section   3,  notwithstanding   anything contained in the Code of Criminal Procedure or any other law for  the  time  being  in force, any  property,  movable  or immovable  or  both, belonging to any person notified  under that  sub-section  stands attached simultaneously  with  the issue  of the notification.  The property so attached is  to be dealt with by the Custodian in such manner as the Special Court may direct.

     The  Special  Court is established under Section 5  of the  Act  to be presided over by a sitting Judge of  a  High Court.  The Special Court is to take cognizance of or to try such cases as are instituted before it or transferred to it. It   is  this  Court  which,   under  Section  9A,  has  the jurisdiction  to exercise such power and authority which was exercisable  before  the commencement of the Act by a  Civil Court  in  relation to any property standing attached  under sub-  Section 3 of Section 3 or in relation to any matter or claim arising out of transactions in securities entered into after  first day of April, 1991 and on/or before 6th day  of June, 1992, in which a person notified under Section 3(2) is

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involved  as a party, a broker, intermediary or in any other manner.

     On  8th  June, 1995, respondent No.  1 the  Custodian, who  had  been  appointed under the Act, notified  Hiten  P. Dalal  (respondent  no.  2 in Civil Appeal No.  762 of  1999 and  appellant  in  Civil Appeal No.  1878  of  1999)  under Section  3(2)  of the said Act.  The Custodian then  got  to know  that  some  shares and securities, which  belonged  to respondent  no.  2, were in the possession of the  appellant bank.   It also came to the knowledge of the Custodian  that the appellant bank had got some of the shares transferred to its  name.   Correspondence was then exchanged  between  the Custodian  and  the appellant bank whereunder the  appellant bank  was  called upon by the Custodian to either hand  over the  shares  and  securities to the Custodian  or  the  bank should  obtain  an appropriate direction from the  Court  in case  the appellant bank was claiming any title to the  said shares

     The  demand  of the Custodian requiring the  appellant bank to hand over the said shares which it had obtained from the  notified  party  led  the   appellant  bank,  which  is incorporated under the laws of England and Wales and has its Head  Office  at  1, Aldermanbury Square,  London,  and  the second  appellant  which  is an existing company  under  the Companies  Act, 1956 and is a wholly owned subsidiary of the Ist  appellant,  to  file a suit No.  1958 of  1993  in  the Bombay  High  Court.  On transfer to the Special Court,  the suit  was  numbered as Suit No.  3 of 1994.  On  29th  June, 1994,  the  appellants  withdrew suit No.  3  of  1994  with liberty  to  file  a fresh suit.  It is thereupon  that  the appellants filed suit No.  17 of 1994 from where the present appeal arises.

     The  case of the appellants in the plaint, inter alia, was  that  on  30th  April, 1992, one Mr.   Arvind  Lal,  an employee of the Bank, informed one Mr.  R.  Iyer, a Director of  the Local Currency Group, Investment Banking Division in the  bank, that approximately Rs.  800 crores of investments made  by  the appellant bank appellant through  Hiten  Dalal were  not backed by securities or banker receipts.  How this shortfall happened, was not known to the higher officials of the   appellant  bank  till   10th  May,  1992.   Thereafter enquiries  were made by the appellant bank to ascertain  the short-  fall  and  efforts were made to  recover  the  same. According to the appellants the shortfall was ascertained to be  in the region of approximately Rs.  1300 crores.  It was alleged  that  there were meetings between the officials  of the  appellants  and Hiten Dalal wherein the  said  notified party  admitted  and acknowledged his liability and  he  had given  various  proposals  for re-payment  and  delivery  of various  stocks in which there was a short-fall.   According to   the  appellants  Hiten  Dalal   did  not  fulfill   his commitments  to  deliver  cash  or stock.   Hiten  Dalal  is alleged to have agreed to and deliver, between 11th May 1992 and  13th  May, 1992, various shares, securities, bonds  and debentures   (hereinafter  referred  to   for  the  sake  of convenience  as  shares).  On 14th May, 1992 the  Manager, Legal  Services of the Bank, advised that a letter should be obtained  from  Hiten  Dalal  in   order  to  eliminate  the possibility  of  his  subsequently claiming  that  the  said shares  had been delivered by way of safe custody.  A letter containing  the  understanding  between   the  parities  was drafted by the in-house lawyer of the appellant bank and was

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given  to  have it transcribed on his note paper.   On  18th May, 1992 Hiten Dalal brought the draft to the office of the Bank  where it was typed and signed by the Hiten Dalal.   It is  an  admitted fact that though the letter was  signed  on 18th  May, 1992, the said letter, however, bears the date of 11th May, 1992.

     Alternative claims were put forth by the appellants in the  said  suit.  In the first instance it was claimed  that the  shares,  the  details of which were  mentioned  in  the annexure  to  the  said  letter dated  11.5.1992  and  worth approximately Rs.  145 crores, were delivered by Hiten Dalal in  partial discharge of his liability to the appellant Bank in  pursuance to the aforesaid agreement which was  recorded in  a note dated 18th May, 1992.  The case of the appellants was that the bank is entitled to exercise ownership right in respect  of  the said shares and to the  accretions  thereon which  may  have  been  received  by  the  appellants.   The appellants also sought a declaration that Hiten Dalal had no right, title or interest in the said shares and the same did not  belong to him on the date of the notification.  It  may here  be  noted that the counsel for the appellants did  not press this claim of ownership before the Special Judge.

     The  second  alternative claim by the  appellants  was that  the said shares were validly pledged in favour of  the appellant  bank  under the letter dated 11th May, 1992.   In exercise  of  its  rights as pledgees,  the  appellant  bank claimed  that the said shares had been adjusted against  the admitted liability of the second respondent to the appellant bank.  It thus claimed ownership over the said shares.  This plea  also  was  not pressed by the  appellants  before  the Special  Court  inasmuch as it conceded that in law no  such right existed in a pledgee.

     The  third alternative put forth in the plaint by  the appellants  was that the letter dated 11th May, 1992 created a  valid  and  existing pledge of the shares  and  that  the rights,  bonus and the dividends received by the  appellants formed  part of the pledge and constituted security for  the appellants.  The appellant bank claimed that it was entitled to  retain  possession of the shares and accretions  thereon until  the second respondent satisfied his liability towards the  appellants.  The appellants claimed a right to sell the pledged  shares  and appropriate the sale  proceeds  towards partial  satisfaction of the outstanding liability of  Hiten Dalal of Rs.  1253 crores.  The appellants thus claimed that as   pledgees  they  were  entitled   to  have  the   shares transferred   in   their  names   without  the  process   of certification.  By an amendment in 1996, another alternative claim  put-forth by the appellants was that the said shares, debentures,  bank  receipts,  bonds and securities  and  the rights  and  bonus  received  by the  appellant  bank  stood mortgaged  to it.  The appellants claimed that a sum of  Rs. 30040885.00  expended  by the appellant bank on purchase  of right  shares and for preservation of the mortgaged security formed  part  of  the mortgage debt.   The  appellants  thus claimed  that  they  were entitled to retain  the  mortgaged shares and securities and the accretions received in respect thereof.

     The  custodian in its written statement did not  admit the  correctness  of  the  facts   stated  in  the   plaint. According to the custodian, Hiten Dalal was a notified party and the shares worth Rs.145 crores which were in the custody

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of  the  appellants were the property of the  said  notified party.   By virtue of the provisions of the Act these shares stood  attached  as  on the day when the name of  Dalal  was notified  and the said shares could not be dealt with by the appellants  except by and under the directions of the court. The  custodian  denied that the appellants were entitled  to any of their claims.

     In  his written statement the defence which was, inter alia,  taken  by  Hiten Dalal was that he was  acting  as  a broker  in  securities  and  as such was  dealing  with  the appellants  for the last four years.  He did not admit  that there  was  any  shortfall in respect of  the  transactions, which  had taken place through him.  He specifically  denied that  the  purchases approximating Rs.1253 crores  were  not supported by delivery of stocks or acceptable bank receipts. On  the  contrary  Dalal  averred that  the  appellants  had committed  several  irregularities  and were  attempting  to transfer  the burden on him.  He denied having accepted  any liability  to pay any amount to the appellant bank or having admitted  to  the  appellants having suffered  any  loss  as alleged  or  at all.  With regard to the stocks  and  shares worth  Rs.145  crores which were lying with the  appellants, the  case of Dalal was that two employees of the appellants, namely,  Ravi  Iyer and Siva Kumar had forcibly  taken  away those  stocks  which had been lying in his office and  which belonged  not  only to him but also to his wife and some  of his customers.  Dalal claimed that these officers threatened him  that  if he did not cooperate they would prosecute  and ruin  him.   Dalal further alleged that his signatures  were taken  on blank documents and the appellants had  wrongfully used those documents with blank signatures in order to foist a  false claim against him.  He further alleged that on 18th May,  1992  under  threat  of  physical  torture,   criminal prosecution and threat to that his life and that he would be ruined the appellants made him sign a letter dated 11th May, 1992.   In short he denied that he had voluntarily  admitted any liability towards the appellants.

     On the basis of the pleadings the Special Court framed sixteen issues as between the appellants and respondent no.1 and  another  seventeen  issues between the  appellants  and respondent  no.2.   It is not necessary, for deciding  these appeals, to refer to the said issues inasmuch as the Special Court  itself  observed that though a number of  issues  had been  raised there were only four questions which arose  for consideration  and  they were;  [I] whether  the  appellants herein  had  suffered  a loss as claimed or  at  all;   [ii] whether  respondent  no.2  had  given  the  said  shares  as securities  and/or  the same were taken from  him  forcibly; [iii]  if the said shares were given as securities then  the question would also be as to whether it was by way of pledge or  mortgage;   and  [iv] whether rights and  bonus  shares, dividend  and  interest  on the said shares formed  part  of secured assets.

     It  may  here be noted that before the  Special  Court counsel  for the appellants stated that he was not  pressing the  plea  of  pledge  with   right  of  appropriation.   He contended  that  the appellants were only pressing  that  in respect  of  the shares in question which they had in  their possession  there was either a mortgage or pledge in respect thereof.

     When  the Special Court was framing issues relating to

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the question as to how the appellants had been able to prove the  loss caused to them by Dalal and if so to what  extent, the  counsel for the appellants had contended that Dalal had admitted  his liability in the said letter of 11th May, 1992 and other documents and, therefore, it was not necessary for him  to  prove the loss.  The Special Court over-ruled  this submission  but no speaking order was passed inasmuch as the counsel  for  the appellants informed that if the  court  so desired the appellants would prove the loss.  The court then proceeded  with the trial of the case on the basis that  the loss  stated to have been suffered by the appellants was not to  be  attempted  to  be proved only on the  basis  of  the admissions  of  Dalal.   The appellants proceeded  with  the trial  claiming  that loss had been caused to them by  their having  paid  moneys in purchase transactions and their  not having received deliveries of stocks/bankers receipts.

     The  appellants led evidence in support of their case. On behalf of Dalal the court was given to understand that he will enter the witness box in order to substantiate his plea of  physical  torture,  threat   of  criminal   prosecution, coercion  etc.  Ultimately Dalal chose not to give  evidence before the court.  On 24th December, 1998, the Special Court delivered its judgment and, inter alia, held that;

     [1]  the  appellants  had  been  able  to  prove  loss totalling  Rs.280.80 crores and that other losses alleged by the  appellants  were disproved;  [2] no coercion  had  been exercised  by the appellants on Dalal;  [3] the letter dated 11th  May, 1992 addressed by Dalal to the appellants created a   pledge  in  favour  of   shares  and  said   debentures, particulars  of  which  were given in annexure to  the  said letter.   The  claim of mortgage of the said shares was  not accepted;   [4]  the  appellants were entitled to  sell  the original  and  right shares pledged to them in reduction  of Dalals  liability to the appellants;  [5] bonus shares  and dividend and interest accrued on the original shares pledged were  not  themselves the subject matter of the  pledge  and must be handed back by the appellants to the Custodian;  [6] Cantriple  Units, referred to in the letter dated 11th  May, 1992,  received by the appellants from Dalal must be  handed back  by  the appellants to the custodian as the  appellants had  not succeeded in showing that they had any right, title or  interest  in respect thereto and nor had it been  proved that  the  said units had been pledged with the  appellants. [7] Costs of Rs.30 lacs were awarded against respondent no.2 and in favour of the appellants.

     Aggrieved  by  the  findings of the Special  Court  in relation  to the quantum of loss suffered, the rights of the appellants  in  regard  to  bonus shares  and  dividend  and interest which had accrued on the original shares, which had been  pledged,  as  well  as  the  direction  to  hand  over Cantriple  Units to the custodian and lastly the  strictures passed  against certain employees of the appellants,  appeal No.  762 of 1999 has been filed.

     Hiten  P.   Dalal  has filed appeal  No.1878  of  1999 challenging  the  judgment  of the Special Court  which  had accepted  the  appellants claim regarding loss amounting  to Rs.280.80  crores.   He  also   challenged  the   directions regarding  handing  over of the Cantriple Units by  Standard Chartered  Bank to the custodian and lastly the challenge is to  the  costs of Rs.30 lacs that had been  awarded  against him.

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     The  four  questions,  which were  considered  by  the Special  Court,  are what arise for consideration  in  these appeals  before  us.   We  will first deal  with  the  issue relating to the loss claimed to be suffered by the appellant bank  and  its  right to retain the securities,  which  were the  to it.

     In the suit, which was filed, it was inter alia stated in the plaint that the appellant bank had suffered a loss of about  Rs.  1253 crores on its dealing with Dalal.  It is on this  basis  that  it  sought   to  retain  and  appropriate securities worth Rs.  145 crores which, admittedly, had been delivered  by  Dalal to the appellant bank between 11th  and 15th,  May, 1992.  The claim of the appellant bank was based on the letter dated 11th May, 1992 (Ex.  G) in the suit.  It has  come  in the evidence and it is not disputed that  this letter  was prepared by the officials of the appellant  bank and  was  signed by Dalal on 18th May, 1992.   This  letter, however,  was  ante  dated to 11th May, 1992.   This  letter addressed  to  the Standard Chartered Bank, Bombay reads  as follows:

     Dear Sirs,

     Re:  Transactions in Government and other securities

     1.   In  the past 4 years I have been acting  as  your broker for transactions in Government and other securities.

     2.   I  am  aware  that  you are  in  the  process  of reconciling  your  purchases/sales through me of  Government and other securities and whilst the reconciliation is yet to be  completed,  you  have ascertained as of  date  that  the following  purchases  aggregating Rs.  1258 crores  are  not supported  by  deliveries of stocks and/or bank receipts  of banks acceptable to us.

     Type of Security Transaction Value 15 Crores units Rs. 200 crores (Karad B.R.) 9% IRFC (1/1) Rs.  385 Crores (Metro B.R.)  9% IRFC (1/4) Missing B.Rs.  Rs.  45 crores  (various B.Rs) 12.5% GOI 2 007 Rs.  80 crores (Karad SGL) 6% GOI 1994 Rs.   50  crores  (Metro SGL) 11% IDBI 2002 Rs.   20  crores (Metro  B.R.)  11.5% IDBI 2011 Rs.  47 crores  (Karad  B.R.) 8.75% IDBI 2000 Rs.  23 crores(Karad B.R.) 6 crore units Rs. 90  crores (Metro B.R.) 12% ICICI 2011 Rs.  50 crores (Metro B.R.)   Cantriple   Rs.    205  crores(Physical)   Cantriple (Expected)    Rs.     58    crores    Rs.     1253    crores

     The  letter  further  goes on to say  that  Dalal  had delivered  to  the  bank stocks, shares, deposits  etc.   as listed  in  the  annexure  to  the said  letter  by  way  of securities  towards  the  short-fall   and/or  any   further short-falls which may be ascertained.  The stocks and shares which  were  listed in the annexure to this letter were  the one  which  were handed over by Dalal to the appellant  bank between  11th and 15th May, 1992 and were stated to be worth Rs.   145 crores, in respect of which, the present suit  was filed.   By  this  letter Dalal further agreed to  keep  the appellant  bank indemnified against any loss which it  might have  incurred  and/or  suffered  upon  the  appellant  bank completion  of  final  re-conciliation of its  account  with Dalal  and he undertook to make good any such losses  either

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by  payment  in cash or by physical delivery of  such  other assets  as  the  bank  might   require.   The  letter   also postulated that if on the completion of the re-conciliation, aggregate  of  the  cash paid and the value  of  the  assets delivered  exceeded the amount of loss identified, then  the Bank  was  to  refund  such excess  to  Dalal.   He  further confirmed  and agreed that the appellant bank was authorised to  sell  the  stocks, shares, debentures etc.   which  were handed  over  to  the bank and to appropriate  the  proceeds thereof to partly liquidate his liabilities to the bank.  If there  was  any short fall after such  appropriation,  Dalal held himself to be personally responsible to pay to the bank such balance as was outstanding.

     At  this stage, we may notice that Dalal did not  deny the  execution  of  this letter.  His case  in  the  written statement  was that this letter and other documents were got signed  by the bank officials under threat or coercion.   He had  contended that the shares, securities etc.  which  were listed  in  Exhibit G had been forcibly taken away by  the appellant bank officials.

     The  Special Court, after taking all the evidence into consideration,  came to the conclusion that the said  shares etc.   had  not been forcibly taken away from Dalal  but  he had,  on the contrary, handed over these shares as security. In  arriving at this conclusion, the special court held that it  was unbelievable that the shares would be forcibly taken away  from  Dalal between 11th and 13th May, 1992 and for  a period  of three days at least he would make no complaint or try  to stop the appellants from taking away the said shares forcibly.   Admittedly,  there  had been a  meeting  between Dalal  and  the Advocate of the appellants and  the  Special Court found it inconceivable that force had been used at the time of taking away all the shares forcibly.

     We  have  gone through the evidence and we agree  with the  aforesaid conclusion of the Special Court to the effect that the contention of Dalal that the said shares were taken away  from him forcibly is not correct.  In the issues which were  framed  the onus of proof that the letter  dated  11th May,  1992 had been executed under threat of physical terror and  criminal prosecution was on Dalal.  Hiten Dalal however chose  not to enter the witness box in support of this plea. Not  only  did  he not lead any evidence in order  to  prove coercion,  the  appellant  bank on the other  hand  examined witnesses  who clearly proved that Dalal had not only signed the  letter  dated 11th May, 1992 but he also  signed  other documents  to  which we will presently refer.  As Dalal  had failed  to step into the witness box or lead any evidence on his  behalf,  the  Special  Court rightly  drew  an  adverse inference against him.

     We must, therefore, proceed on the basis that Ex.  G even  though prepared by the employees of the appellant bank had  been  voluntarily and willingly signed by Hiten  Dalal. We  also  proceed on the basis that the  shares,  securities etc.   had  been  delivered by Dalal to the  appellant  bank valued  at Rs.  145 crores between 11th and 15th May,  1992. It  is in this background that we must examine the claim  of the  appellant  bank with regard to the loss stated to  have been suffered by it.

     On  the basis of the evidence which was led before it, the  Special Court observed that out of items of  securities

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mentioned  in  Ex.   G, items 2,3,4,6,11,12  and  13  were dis-proved.   It held that it is proved that in respect  of these  items,  there  is no loss.  The claim  for  Rs.   795 crores thus stands disproved.

     Having  held  that  the claim for loss  of  Rs.   1253 crores  was an exaggerated claim, the Special Court  further came  to  the  conclusion  that items 5,7,8 &  9  were  also dis-proved  or  in any event, they could not be relied  upon and used for the purpose of calculating loss.  It upheld the case  of  the  appellants  with regard to items  1  and  10. Lastly,  the  Special Court, came to the conclusion that  on the basis of the evidence produced before it, the appellants had  made  a payment of Rs.  201 crores for the purchase  of units of U.T.I.  of the face value of Rs.  15 crores but had not  received  the  said securities.  It also  accepted  the claim  of  loss  of Rs.  79.80 crores which was  evident  by statement  Ex.   19 which was produced in the court  by  the counsel  for  the appellants.  The Special Court  held  that this statement Ex.  19 was tendered under Section 163 of the Evidence  Act and the facts stated therein must be  regarded as having been proved or binding on Dalal.

     It was submitted by Mr.  K.K.  Venugopal and Mr.  K.S. Cooper,  learned  counsel for the appellants that  for  this case  it  was  not  necessary for  the  appellants  to  have established  loss  of more than Rs.  145 crores.  Mr.   K.K. Venugopal  submitted that the appellants were not contending in  these appeals that the shares worth Rs.  145 crores  had been  given  to the appellants by way of mortgage.   It  was submitted that the said shares were pledged to the bank.  He however  submitted  that the evidence on record  would  show that  the  appellants  had  been  able  to  prove  that  the liability  of  Hiten  Dalal towards the appellants  was  Rs. 1253  crores.  In any event, the Special Court had  accepted the  claim  of loss of the appellants to the extent  of  Rs. 280.80  crores  which  was much more than the value  of  the pledged  shares.   It was submitted that with regard to  the balance  claim  the Special Court ought not to have given  a positive finding that the same stood dis-proved.

     Hiten  Dalal,  in  the  appeal   filed  by  him,   has challenged  the acceptance by the Special Court of the  loss of  Rs.   280.80 crores stated to have been suffered by  the appellant  bank  in  its dealing with him.  So  far  as  the Custodian  is  concerned,  Mr.   Shiraz  Rustamjee,  learned counsel  for  the Custodian, submitted that it accepted  the loss  of  Rs.  201 crores which was more than sufficient  to cover the value of the pledged shares of Rs.  145 crores but he  submitted  that  the decision of the  Special  Court  in invoking  the provisions of Section 106 of the Evidence  Act and  in holding that the loss of Rs.  79.80 crores has  been proved  was  not correct.  In this respect he supported  the submissions of Shri S.  Ganesh, learned counsel on behalf of Dalal.

     Before dealing with the correctness of the findings of the Special Court it will be appropriate to analyse the said letter  dated 11th May, 1992 Ex.  G.  As has already  been observed,  this  letter  was   admittedly  prepared  by  the officials  of the appellant bank on the basis of  inspection which  had  been  carried out.  Para 2 of  the  said  letter states  in no uncertain terms that as on that date the bank had ascertained that the following purchases aggregating Rs. 1258 crores are not supported by deliveries of stocks and/or

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bank  receipts  of banks acceptable to us.   The  purchases which  are referred to are the thirteen types of securities, total  value  of  which aggregated Rs.  1253  crores.   This means  that  there was an outgoing of Rs.  1253 crores  from the appellant bank, in cash or in kind and thirteen types of securities  listed in para 2 of the said letter, in  respect of  which  the  outgoing  had  taken  place,  had  not  been delivered  or bank receipts in respect thereof given.  It is to  secure  the  delivery of these stocks  and  shares  that securities  and  shares  worth  Rs.  145  crores  listed  in annexure to this letter were pledged to the appellant Bank.

     The Special Court Act, 1992 contemplates attachment of all  movable and immovable properties from the day when  the party is notified.  The attached property is thereupon to be dealt  with  by the Custodian in such a manner as the  Court may  direct.  The attached property is to be disposed off by the  Custodian  under order of the Court and  Section  11(2) specifies  the  liabilities of the notified party which  are required to be paid or discharged out of the proceeds of the properties  of  the notified party.  It was, therefore,  but right  that  the  Court  had to  be  satisfied  by  positive evidence,  and  not merely on the basis of the admission  of Dalal  that the appellant Bank had suffered loss inasmuch as purchases aggregating Rs.  1258 crores are not supported by deliveries. with the result that the securities and shares worth  Rs.   145  crores had been pledged in favour  of  the appellant bank.

     The  loss of Rs.  201 crores qua item No.  1 in regard to  the  non-delivery of Rs.  15 crores units of U.T.I.   of the  face  value of Rs.  150 crores was proved  through  the evidence  of Mr.  Sanjay Pandit, PW 4.  The documents  which were  produced  in evidence for proving that the  appelllant bank had made payment of Rs.  201 crores for the purchase of the  said U.T.I.  units, which securities were not  received by  the  appellant bank, was firstly a deal slip  No.   7941 which showed purchase of these units from the Bank of Karad. In  respect of this transaction, cost memo had been received by  the  appellants from the Bank of Karad on  8.1.1992.   A transaction  slip dated 8.1.1992 showing the purchase of Rs. 15 crores U.T.I.  units at the rate of Rs.  13.40 (Ex.  B- Vol.   IV) per unit amounting to Rs.  201 crores was  proved by  PW  4.  Also placed on record was the  bankers  receipt dated  8th  January,  1992  for a sum of  Rs.   201  crores. Against  this, on 8th January, 1992, there was a sale of  9% I.R.F.C.   bonds  of the face value of Rs.  210 crores.   By pay order dated 8th January, 1992 bearing No.  231967, a sum of  Rs.   199.79  crores  was paid to  the  Bank  of  Karad. Another  document  Ex.  M is the receipt dated 8th  January, 1992  issued by the Bank of Karad acknowledging the  receipt of  Rs.   201 crores in respect of said U.T.I.   units.   In face  of  the  said  evidence, Shri  Ganesh  was  unable  to persuade  this Court that the decision of the Special  Court in  accepting  the  loss of Rs.  201 crores  was  incorrect. This  finding  regarding  the  loss of Rs.   201  crores  is affirmed.

     Now  we  come  to  the next item  of  loss  which  was accepted  by  the Special Court, namely, that of Rs.   79.80 crores mentioned as item no.  10 in Ex.  G.

     During  the  cross-examination of the  appellant  bank witness  PW  6, the counsel for the Hiten Dalal put him  the following  question:  Mr.  Rao calls upon the plaintiffs to

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show  any  single transaction wherein the plaintiffs  funds have  been  diverted  by Mr.  Hiten Dalal  through  bank  of Karad.   This  question  was  put to  the  witness  on  6th November, 1998.  Thereafter on 11th November, 1998, the said PW  6  tendered  in  evidence Ex.  19 (colly)  which  was  a statement  containing  details  of  two  transactions  which indicated  that money had ultimately gone to the account  of Dalal.   One  of the transactions which was listed was  item no.   10  of  Ex.  G.  When this statement was  tendered  in evidence,  the Special Court noted that the counsel for  the appellants had kept in Court all the Deal Slips, Cost Memos, Pay  Orders  and Banker Receipts.  These were not marked  as exhibits  because  the counsel for Dalal stated that he  had not  called for these documents and the said counsel had not taken  inspection of the said documents.  The Special  Court observed  that this statement Ex.  19 had to be regarded  as having  been tendered under Section 163 of the Evidence  Act and,  therefore stood proved and was binding on Dalal.   The Special  Court  then examined the said Ex.  19 which  showed that  the  appellants had purchased six crores units of  the U.T.I.   of the face value of Rs.  60 crores for Rs.   79.80 crores  from  the Bank of Karad and had made payment of  the same  by Pay Order No.  231919 for Rs.  37.63 crores.   This payment  was made after netting of sale of security to  Bank of  Karad.   Ex.  19 further shows that in respect  of  said transaction,  the  appellants had received a banker  receipt No.   18  of  the Metropolitan Co-operative Bank.   Ex.   19 further  showed that the money which the appellants paid  to the Bank of Karad was credited into the account of one Abhay Narottam  in  the  Bank of Karad and thereafter,  from  that account,    an    amount   of     Rs.    36    crores    was transferred/credited  to  the account of Dalal  with  Andhra Bank.   The Special Court observed that even though the said statement   established  that  Rs.   36  crores   had   been transferred  into the account of Dalal, no evidence had been led by him to show why he had received Rs.  36 crores and/or that  it was under some transaction with the Bank of  Karad. In  the absence of such evidence, the Special Court came  to the  conclusion  that this money of the appellant  bank  had been siphoned out by Dalal.  The Special Court further noted from  Ex.  19 that on 27th November, 1991 the appellant bank purchased  13% M.T.N.L.  Bonds of the face value of Rs.   20 crores  from the Bank of Karad and by pay order No.  231079, a sum of Rs.  18.71 crores was paid by the appellant bank to the  Bank  of  Karad.   A sum of Rs.   29.99  crores,  which included the aforesaid sum of Rs.  18.71 crores plus another sum  of Rs.  11.27 crores, was transferred to the account of Hiten  Dalal with Andhra Bank.  The Special Court noted that in  this case also it was shown that from the Bank of  Karad an  amount of Rs.  18.71 crores of the appellants bank  had gone  to  the  account of Hiten Dalal.   The  Special  Court further noticed that in respect of this transaction relating to  Rs.  18.71 crores regarding the purchase of 13% M.T.N.L. bonds,  the  appellant  bank had not claimed that  they  had suffered  a  loss as the said transaction was not listed  in Ex.  G.  While not accepting the sum of Rs.  18.71 crores as being  loss/suffered  by the appellants bank,  the  Special Court  accepted the loss of Rs.  79.80 crores being the face value of six crores Units of the U.T.I.  in respect of which Rs.   37.63 crores had been paid but the said units were not received.

     It  is  contended by Mr.  S.  Ganesh, learned  counsel for   the   respondent  no.   2  that  the   Special   Court mis-understood  and mis- conceived the provisions of Section

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163  of  the  Evidence Act.  He submitted that  Section  163 applied  only  in  the following three conditions:   i)  The specified documents must have been identified by the parties concerned;   ii)  That the parties must give notice  to  the other  party  to  produce  the  documents;   iii)  The  said documents  must  have been produced and  inspection  thereof taken by the party who gave notice for the same.

     It  was  contended that these basic conditions,  which are  necessary  for  the application of Section 163  of  the Evidence  Act,  had not been fulfilled and,  therefore,  the Special  Court  was  not  correct   in  admitting  the  said statement in evidence as Ex.  19.

     Mr.   Rustomjee,  learned  counsel,  who  appeared  on behalf  of Custodian, also submitted that Section 163 of the Evidence Act had been wrongly invoked in the present case.

     We  are not inclined to go into the correctness of the decision of the Special Court regarding the applicability of Section  163  of the Evidence Act.  Mr.  Rustomjee,  learned counsel  submitted that as far as Custodian is concerned, he had  chosen  to  accept the decision of  the  Special  Court wherein it had accepted the losses qua item no.  1 stated to have  been  suffered by the appellant bank for a sum of  Rs. 201  crores.   No  appeal has been filed  by  the  Custodian challenging  the correctness of the decision of the  Special Court  accepting  the  loss of Rs.  79.80  crores.   If  the Custodian  had  felt  aggrieved an appeal should  have  been filed.   This  not  having been done it is not open  to  Mr. Rustomjee  to submit that this part of the judgement of  the Special Court should be reversed.

     As  far as Dalal is concerned, once the Special  Court has  come  to the conclusion that there was no  coercion  or undue  influence in his signing letter dated 11th May, 1992, Ex.   G,  it  is  then  not open to  him  to  contend  and challenge  the  findings  of  the Special  Court  which  has accepted  the  claim  of the appellant bank with  regard  to payment  having been made in respect of the U.T.I.  Units of the  face value of Rs.  79.80 crores.  This is more so  when we  find  that the Special Court has noticed that  when  the statement  Ex.  19 was tendered in evidence, the counsel for the  appellant  bank had kept in court all the  deal  slips, cost memos, pay orders and banker receipts in respect of the said transaction.  Dalal having accepted the fact that there had  been  a  non-delivery of six crores units of  the  face value  of Rs.  79.80 crores which had been purchased by  the appellant bank, which is evident by his signing Ex.  G, it is  not  open to him to contend that he does not accept  the correctness  of  the  contents of the said letter.   In  our view,  therefore,  without  expressing any  opinion  on  the correctness of the findings of the Special Court with regard to  the applicability of Section 163 of the Evidence Act  in the present case, the conclusion of the Special Court to the effect  that  six  crores units of the U.T.I.  of  the  face value  of  Rs.  79.80 crores had not been delivered  to  the appellant  bank, even though it had made payment in  respect thereof, does not call for any interference.

     With  regard to the other items of securities referred to  in  Ex.   G, learned counsel for  the  appellant  bank invited  our  attention to Ex.  E collectively which  were hand-written notes signed by Dalal on 17th May, 1992 wherein he  had undertaken to deliver various shares and  securities

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of  the total value of Rs.  900 crores.  Keeping in view the fact  that the Special Court had observed that the appellant bank  will have to prove the extent of loss not on the basis of  admission of Hiten Dalal but by leading evidence on  its own,  we  are  of the opinion that the best  evidence  which could  have been led in respect of the other items stated to have  been purchased and mentioned in Ex.  G was not  led. Apart  from  the  loss of aforesaid amount  of  Rs.   280.80 crores  which  has  been accepted by the Special  Court  and upheld  by us, we would have expected the appellant Bank  to lead  evidence  to prove that it had paid sums of money  and did  not receive the securities mentioned in Ex.  G.   The main  documentary  evidence which was led on behalf  of  the appellants  in  respect of those items was Ex.  G and  the notes  Ex.  E which contain the schedule for the  delivery by  Dalal  of various shares which were to take  place  from 18th May, 1992, 19th May, 1992, 20th May, 1992 and 22th May, 1992.   These  notes  are  signed  by  Dalal.   In  addition thereto,  there  was  to be conversion of bank  receipts  of Canstars  having valued at Rs.  10 crores.  According to the appellant  bank, no such delivery took place.  The appellant bank,  however,  did  not lead any evidence  to  prove  that either  in respect of the shares and securities mentioned in Ex.   E or in respect of items mentioned in Ex.  G, except for items 1 and 10, any payment had in fact been made by the appellants.   The  claim  of loss in excess of  Rs.   280.80 crores cannot be accepted.

     The Special Court, on the basis of the evidence before it,  came  to  the  conclusion that except for  sum  of  Rs. 280.80  crores,  the balance claim of the  appellants  stood dis-proved.   As  we  have already noticed, the  suit  was filed by the appellant bank because it had in its possession shares  and  securities which had been lodged by Dalal as  a notified party with the appellant bank between 11th and 15th May  , 1992.  The appellants had been asked by the Custodian to  establish  its  right  to retain  the  said  shares  and securities  and  this is the reason why the suit was  filed. Even though in the plaint, it was said, and that is noted in Ex.   G itself that the appellant bank had suffered a loss of  Rs.   1253  crores for the purpose of  establishing  its right  to  retain and sell shares and securities  worth  Rs. 145  crores, it was not necessary for the appellant bank  to have  proved the extent of total loss which it had suffered. It  was enough for the Bank to prove that it had paid  money in  excess of Rs.  145 crores and had not received shares or Bankers  receipt  in respect thereof.  This would  give  the Bank  right to retain the said shares as having been pledged to it.

     Undoubtedly  the  Special  Court   had  required   the appellant  bank to prove by independent evidence as to  what was  the  extent of loss suffered by it.  One of the  issues between  the  appellant bank and the custodian, being  Issue No.   2,  was as to what was the extent of loss suffered  by the  Bank.  The Special Court answered the issue by  holding that  the appellant bank had been able to prove that it  had suffered  a  loss to the extent of Rs.  280.80 crores  only. Having  come  to  this conclusion it would  have  been  more appropriate,  in our opinion, for the Special Court to  have observed that the appellant bank had failed to prove loss in excess  of  Rs.  280.80 crores rather than giving a  finding that  the  loss  in  excess of  Rs.   280.80  crores  stands dis-proved.   The loss which it had suffered was  sufficient to  enable  it to retain and dispose off the shares  to  the

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extent of Rs.  145 crores which had been pledged with it.

     In  respect  of the pledged stock, right  shares  were subscribed  and obtained by the appellant bank, bonus shares and  dividend  and  interest were also received by  it.   In respect  of  this the two questions which arise are  whether these  accretions  form  part of the pledged  property  and; secondly  if  they  do not, then whether the  Special  Court should have directed the appellant bank to hand them over to the Custodian.

     Before  we  deal with the main contention it  will  be pertinent  to  note that in so far as the right shares  were concerned,  it  was accepted by all the parties that as  the appellant  bank  had  paid for these right shares  the  same belong  to  the  it  and they were  entitled  to  keep  them irrespective of the question whether they formed part of the pledge  or not.  The question of return of right shares does not, therefore, arise in these appeals.

     As  far as bonus shares are concerned it was submitted by  Mr.  Cooper, learned counsel for the appellant bank that they  are  not accretions and no issue arises  whether  they should be handed over to the appellant bank or to Dalal.  It was  submitted that as bonus share is only a piece of  paper it  has  no  intrinsic value.  Reliance was  placed  on  the following  passage  from  the  decision  of  this  Court  in Commissioner  of  Income Tax vs.  Dalmia Investment  Company Ltd.   1964  [7]  SCR 210 when in relation to the  issue  of bonus shares it was observed as follows:

     .it  takes  nothing from the property of the  corpus and  adds  nothing to the interest of the shareholder.   Its property  is  not  diminished and their  interests  are  not increased.   The  proportional interest of each  shareholder remains  the  same.  The only change is the evidence,  which represents  that  interest, the new shares and the  original shares  together representing the same proportional interest that the original shares represented before the issue of the new  ones.  The corporation is no poorer and the stockholder is  no  richer than they were before.  What has happened  is that  the plaintiffs old certificates have been split up in effect  and have diminished in value to the extent of  value of the new.

     This  decision  was followed by this Court  in  Hunsur Plywood Works Ltd.  Vs.  Commissioner of Income Tax 1998 [1] SCC 335.

     In  our  opinion  the  Court   rightly  came  to   the conclusion  that bonus share is an accretion.  A bonus share is  issued  when  the  company capitalises  its  profits  by transferring  an amount equal to the face value of the share from its reserve to the nominal capital.  In other words the undistributed  profit  of  the company is  retained  by  the company  under  the  head of capital against  the  issue  of further  shares  to  its shareholders.  Bonus  shares  have, therefore,  been described as a distribution of  capitalised undivided profit.  Section 94 of the Companies Act refers to the  power of a limited company to alter its share  capital. Under  Section 94[1][a] it has power to increase its capital share  while  under  sub-clause [d] it can sub-  divide  its share  into shares of smaller amount.  Whereas in a case  of sub-division  an  existing share is simply divided or  split and  it  may  be  argued that no new  share  or  capital  is

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created,  but there can be little doubt that in the case  of issue  of bonus share there is an increase in the capital of the company by transferring of an amount from its reserve to the  capital  account  and thereby resulting  in  additional shares being issued to the shareholders.  A bonus share is a property  which  comes into existence with an  identity  and value  of  its own and capable of being bought and  sold  as such.   Neither In Dalmia Industries nor in Hunsur Plywoods case  was  this Court concerned with a question whether  the bonus  share could be regarded as an accretion or not.  This Court  in  those  cases was only concerned with  a  question relating  to  the  valuation  of the  bonus  share  for  tax purposes.

     On  the  other  hand  the  Privy  Council  in  Motilal Hirabhai  and  Ors.   Vs.  Bai Mani AIR 1925 PC  86  had  to consider as to whether the pledgee was required to return to the  pledgor,  on  redemption, bonus shares which  had  been issued.  The plea taken by the pledgee in that case was that the  pledgee was only required to return the original shares which  were  pledged  and not the bonus  shares  which  were received.   Rejecting  this contention it was held that  the bonus   shares  were  received  as   arising  out   of   and appertaining  to  the  original  shares   and  that  it  was impossible  to contend that the right to these shares  could be  differentiated  from the right to the  original  shares. Referring  to  Section  163 of the Contract  Act  the  Privy Council  held that These shares [bonus shares] are  clearly accessions  to the shares expressly pledged or hypothecated, and   the  pledgor  or   his  representative,  the   present plaintiff,  is  entitled to recover the same. Applying  the same  logic  it must follow that the dividend  and  interest which was received by the plaintiffs and which was relatable to  the  pledged stocks must also be regarded as  accretions thereto.

     It  was  then contended by Mr.  Cooper that the  bonus shares,  dividend  and  interest, if they  are  regarded  as accretions  to  the  pledged stocks then they must  also  be regarded as forming part of the pledged property which could not  be  ordered to be handed over unless  redemption  takes place.   In other words, the submission was that the Special Court  could  not have permitted the appellant bank to  have retained  the stocks originally pledged but at the same time directed  that the accretions thereto should be handed  over to the custodian.

     Section  172  of  the Contract Act provides  that  the bailment  of  goods  as  security or payment of  a  debt  or performance of a promise is called pledge.  Bailor being the pawnor  and  pawnee being the bailee.  What is  bailment  is defined  by  Section  148 which, inter alia,  provides  that bailment  is the delivery of goods by one person to  another for  some purpose, upon a contract that they shall, when the purpose  is accomplished, be returned or otherwise  disposed of  according  to  the directions of the  person  delivering them.   The person delivering the goods is called the bailor and the person to whom the goods are delivered is called the bailee.   Section 160 provides that the goods bailed are  to be  returned  by  the  bailee  on  expiration  of  time   or accomplishment  of  purpose.   Reading   Section  172   with Sections  148 and 160 of Contract Act, it would appear  that when  goods  are bailed for securing payment of debt or  the performance  of  a promise the bailor would get a right  for the   return  of  the  said   goods  when  the  purpose   is

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accomplished, namely, the debt is returned or the promise is performed.   At  the  same  time Section  176  provides  for pawnees  right  when  pawnor makes default.   This  section reads as follows:

     Pawnees  right  where pawnor makes default:- If  the pawnor makes default in payment of the debt, or performance, at  the stipulated time, of the promise, in respect of which the  goods were pledged, the pawnee may bring a suit against the  pawnor  upon the debt or promise, and retain the  goods pledged  as a collateral security;  or he may sell the thing pledged,  on  giving  the pawnor reasonable  notice  of  the sale.

     This  section  not only gives the pawnee the right  to retain  the  goods pledged as collateral security  but  also entitles  the pawnee to sell the pledged goods after  giving pawnor  reasonable  notice of the same.  If the proceeds  of the  sale are less than the amount due, the pawnor continues liable  to  pay  the  balance.  On the  other  hand  if  the proceeds  realised  on the sale being made are greater  then the  amount  due the pawnee is under obligation to pay  over the surplus to the pawnor.

     According  to Section 163 of the Contract Act, in  the absence  of a contract to the contrary, the bailee is  bound to  deliver to the bailor or according to his directions any increase  or  profit which may have accrued from the  bailed goods.   It  is indicated in the section that if a  calf  is born  to a cow then the bailee is bound to deliver the  calf as well the cow to the bailor.  The custodian claims that as and when such accretions have taken place the pledgee has no right to retain the same.

     In  this  connection  it  was  contended  by  Mr.   S. Rustomjee, learned counsel for the respondents, that Section 163  mainly provides that the bailee is bound to deliver any increase  in  profit  which may have accrued  but  the  said section  does  not provide that such delivery is to be  made only  on  accomplishment of the purpose for which the  goods are  bailed.  Had it been the intention that such accessions were  to be delivered only at the time of accomplishment  of the  purpose for which the goods are bailed, the Legislature would  have  clearly  provided  for  it.   To  buttress  his argument  he  sought to rely upon Sections 63 and 64 of  the Transfer  of  Property  Act  which provide  that  where  the mortgaged  property  in  possession of  the  mortgagee  has, during  the  continuance  of   the  mortgage,  received  any accession,  the  mortgagor, upon redemption, shall,  in  the absence  of  a  contract  to the contrary,  be  entitled  as against  the mortgagor to such accession.  It was  contended that  the  words upon redemption are conspicuous by  their absence  in  Section  163 of the Contract Act.   He  further contended  that  Sections  163 to 173 of  the  Contract  Act repeatedly  referred  to  the   words  goods  pledged  and indicated  that  the pawnees rights including that of  sale extended only to the goods pledged and not to other goods.

     While  interpreting Section 3(3) of the Special Courts Act, 1992, this Court in Tejkumar Balakrishna Ruia Vs.  A.K. Menon and Anr.  [(1997) 9 SCC 123] at page 127, in paragraph 9, observed as follows:

     It is perhaps necessary to make clear that the income

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or  usufruct of attached property is also attached property. Thus,  if  the property be shares, dividends and  bonus  and rights  shares thereon would also be attached property.   It is only income generated by a notified person by dint of his own  labour which falls outside the net of Section 3(3).  In respect  of  such income, the attachment under Section  3(3) does not operate.

     If  the accretions are regarded as property which come to existence after the date when the party was notified then in view of T.B.  Ruias case income generated after the date of  notification would fall outside the net of Section 3(3). It,  therefore,  became  necessary for this  Court  in  T.B. Ruias  case to observe in paragraph 9 that if the  attached property  is  shares  then the dividends, bonus  and  rights shares would also be regarded as attached property.  If this be  so  then would pledge not extend to these accretions  to the  shares  which were pledged?  In this connection  it  is relevant to notice that Story on Law of Bailment at para 292 has  stated  thus:  By the pledge of a thing, not only  the thing  itself  is pledged, but also, accessory, the  natural increase  thereof.  As if a flock of sheep are pledged,  the young,  afterwards born, are also pledged. This passage has been  relied  upon by Chitty on Contract, 28th Edition  at page  162 where it is noted that If during the pledge there is  an  increase  in  the value of the  thing  pledged,  the pledgee  is  entitled  to  the   increase  as  part  of  his security.  To  the  same effect is the  view  contained  in Halsburys  Laws  of  England Vol.36 para 123  where  it  is stated in connection with the special property of the pawnee If  during the contract there is any increase in the  value of  the security, the pawnee is entitled to that increase as part of his security.

     From  the aforesaid it would follow that what  Section 163  of the Contract Act really means is that accretions  in respect  of  the  goods bailed cannot be a property  of  the bailee but must be returned when the goods themselves bailed are  returned.  A necessary corollary to this would be  that as  the  pledge  extends to such accretions  then  when  the pledged  goods  are returned these accretions must  also  be given  back.   But  if the pledge extends  to  such  natural increase  of  the  pledged  goods it must  follow  that  the pledgee  would  not only have the right to retain  the  said accretions  but  also have the right to sell the same  along with  original shares pledged for the purposes of  realising amounts  due  to it and in respect of which the shares  were pledged  as a security.  Not only will this be in line  with the  aforesaid  observations of this Court in  T.B.   Ruias case but in arriving at this conclusion we find support from the  Halsburys  Laws  of  England Vol.2  para  1524,  where dealing  with  the bailees duty to account it was  observed that When the return of the bailed chattel constitutes part of  the  bailees obligation, he must restore not  only  the chattel  itself,  but  also   all  increments,  profits  and earnings  immediately derived from it. It would follow from the  aforesaid  that the accretions to the pledged  property would continue to be retained by the pawnee and, in the case of  a  notified  party,  like  in  the  present  case,   the accretions to the pledged property would also be regarded as attached  property  to be dealt with in the manner in  which the pledged shares have to be dealt with.

     It  is  not possible to accept the contention  of  the custodian  that  as and when any accretion takes  place  the

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pawnee  is  under  Section  163  liable  to  hand  over  the accretion  to  the pawnor.  It is true that the words  upon redemption as used in Sections 63 and 64 of the Transfer of Property Act are not included in Section 163 of Contract Act but it is to be seen that if the accretion is to be regarded as  forming part of the bailed property then such  accretion must  remain with the pawnee and be dealt with by him in the same  manner  as  the pledged shares.  In  other  words  the accretions  form an integral part of the attached shares  as on the date of attachment, as held in T.B.  Ruias case, and it  follows  that it would also be an integral part  of  the shares   when  they  were   pledged  and  would,  therefore, constitute  a  part of the pledged security.  The  appellant bank  would,  therefore, be entitled to retain the same  and deal  with  them  as pledged stocks.  The  decision  of  the Special  Court that the bonus shares, dividend and  interest which  had accrued on the pledged shares were not themselves the  subject  matter of the pledge and must,  therefore,  be handed over by the appellant bank to the custodian cannot be sustained.

     In  the  aforesaid  letter dated 11th May,  1992,  Ex. G,  item  no.12  refers  to   Cantriple  Units  having   a transaction  value of Rs.205 crores and item no.13 was shown as  Cantriple accepted having a transaction value of  Rs. 58  crores.   In so far as Cantriple Unites of the value  of Rs.58  crores  are  concerned, it appears that by  an  order dated  10th June, 1993, passed in Miscellaneous  Application No.29 of 1993, the Special Court directed the appellant bank to  hand  over the said units to the custodian.  This  order has  attained  finality and no contention has been urged  in respect thereto.

     What  now remains to be considered is the order of the Special  Court  directing  that the Cantriple Units  of  the value  of  Rs.   205  crores should be handed  over  by  the appellant  bank  to  the  custodian.  In  arriving  at  this decision the Special Court dealt with the evidence which had been  led by the appellant bank in respect of this item  and observed   that   the  appellant   bank  had   been   taking contradictory  stands in respect thereto.  The Court came to the  conclusion that no payment had been made in respect  of these  shares  and the case which was then sought to be  put forth  that the said units had been received as security was false.

     It does appear that the appellant bank has, in respect of  Cantriple  Units,  adopted   varying  and  contradictory stands.  While in the letter dated 11th May, 1992, the tenor was  that payment had been made but these units had not been given,  but  in the letter dated 20th May, 1993,  the  stand taken  was  that  these Cantriple Units formed part  of  the pledged  securities.  In another letter of 16th June,  1993, it  was  stated that these units were purchased and set  off against  earlier  transaction.  A witness on behalf  of  the appellant  bank  gave evidence to the effect that the  units were taken by way of security and were not purchased at all.

     In  the  light of the said evidence the Special  Court rightly  came to the conclusion that the appellant bank  had no  right to retain these units in their possession.   These units  had  to  be  regarded as  being  attached.   We  may, however,  note that in respect of these units  Miscellaneous Application  No.36  of  1993  had been  filed  by  Can  Bank Financial  Services  Ltd.   before the Special  Court.   The

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claim  of Can Bank Financial Services was that the appellant bank  herein  had  forcibly taken away  the  said  Cantriple Units.   The  Special Court has in this case  directed  that these  units should be handed over to the custodian but  the appellant  bank may establish a claim to these units in  any other proceedings.  It may here be noted that the contention on  behalf of the appellant bank was that pending before the Special Court were Suit No.9 of 1994, Suit No.45 of 1995 and Miscellaneous  Application No.36 of 1993 where the  question of title to these Cantriple Units was directly in issue.

     The grievance of the appellant bank in these appeal is that  the Special Court erred in giving detailed findings in respect of these Cantriple Units and also erred in directing the  appellant  bank  to  hand over the said  units  to  the custodian  because Cantriple Units were outside the scope of the  suit.   The  fear  of the appellant bank  is  that  the findings  of the Special Court with regard to the  appellant banks  right to retain these Cantriple Units may  prejudice them in the other proceedings.

     In   paragraph   50  of  the   plaint  it   has   been categorically stated that the suit was restricted to seeking relief  in respect of the shares, securities, debentures and bank receipts delivered between 11th to 13th May, 1992.  The Cantriple  Units in question had been delivered by Dalal  on 9th May, 1992.  There is no specific issue, which was framed with  regard to the question, as to whether these  Cantriple Units  had been purchased by the appellant bank or had  been handed  over  to them by way of security.  Once the  Special Court has come to the conclusion that the appellant bank has not   proved   that  Rs.    205  crores,  representing   the transaction value of these Cantriple Units, were paid for or were  pledged, it was justified in directing handing over of the   said  units  to   the  custodian.   Other  proceedings specifically  relating  to these Cantriple Units  are  still pending  before the Special Court, especially  Miscellaneous Application  No.   36 of 1993.  Under the  circumstances  it would  appear  that  the observations and  findings  of  the Special  Court  relating  to  the Cantriple  Units,  in  the absence  of  evidence  being  led   before  it  by  all  the interested  parties, can only be regarded as, prima facie so as  to  enable  it to come to the conclusion that  the  said Cantriple Units must be handed over to the custodian and his retention would be subject to the outcome of the other legal proceedings  including Miscellaneous Application No.  36  of 1993  and  the  appellant bank and other  parties  would  be entitled  to  try  and establish their rival claims  to  get possession of the said Cantriple Units.

     Learned  counsel for the appellant bank also submitted that  the  observations of the Special Court to  the  effect that  there appeared to be some arrangement which  subsisted between  the  appellant bank and Dalal were unwarranted  and uncalled  for.  We do not intend to make any observation  in connection  therewith  because the Court has  itself  stated that  it  was merely a presumption, and not a finding,  that the  appellant  bank  had  entered   into  some  sort  of  a transaction  in securities with Dalal with the understanding that  they would get a fixed return of 15 per cent on  those transactions.  Once the Court itself observed that  loss is not   a  finding  but  merely   a  presumption,  the   said observations   cannot  in  any   way  adversely  affect  the appellant  bank  or reflect as being a positive  finding  in respect  of its business transactions.  Perhaps the  Special

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Court  could  have avoided the said observation but,  as  we have  already  observed, these observations should  not  and cannot  cause  any  prejudice to the appellant bank  in  any other matter which is pending before the Special Court.

     It  was submitted on behalf of the plaintiffs that the Special  Court  ought not to have passed strictures or  made harsh  observations  against  the appellant  bank.   It  was contended  that the appellant bank was victim of  conspiracy between  their  employees and Dalal on account of  which  it suffered loss heavily.  Services of several officers alleged to  be  involved  in the conspiracy were terminated  by  the appellant  bank  and criminal proceedings  were  instituted. This  shows, it was contended, that when the appellant  bank got  to  know about the acts of its employees it acted in  a bona  fide manner and no strictures should have been  passed against it.

     While  examining  the evidence the Special  Court  has observed  that the appellant bank was creating false record, which  was admitted by their own witnesses, and further that in  the  greed  for profit the appellant bank  was  flouting rules  and  regulations of the Reserve Bank of India.   This and the other observations made by the Special Court, though harsh,  appear  to  be  amply justified.   In  making  these observations  the  Special Court took note of the fact  that according  to  the  appellant  banks  own  witnesses  false records  were created in the case of 9% IRFC Bonds to hide a hole  from  the  Reserve Bank of India.  The  false  record, which  was created, showed purchase of Cantriple Units  even when  there  was no transaction of purchase.  This was  done because  inspection  by  the  Reserve   Bank  of  India  was expected.   None  of the officers against whom  observations have been made by the Special Court have chosen to challenge the  same.   No orders need be passed, in our opinion,  with regard  to  the said observations of the Special Court  made with  reference to the officers of the bank who suddenly one day realised in May 1992 that the bank had made purchases of securities  etc.  for Rs.1253 crores but in respect of which deliveries  have not been made, the case which was set up in the  letter dated 11th May, 1992.  If before 11th May,  1992 the  management  was  unaware of the short fall  of  arrears worth  Rs.1253 crores, as claimed by the appellant bank, the strictures  passed  and  the observations made  against  the appellant   bank  by  the   Special  Court  were   eminently justified.

     Hiten  Dalal  in C.A.  No.  1878 of 1999 has  impugned the  decision  of the Special Court upholding the  appellant banks  claim  for  losses/deficiencies  to  the  extent  of Rs.280.80 crores.  The decision of the Special Court in this regard  has  already  been approved by us herein  above  and nothing  more  need  to  be  said  about  this.   One  other contention  which  requires  consideration  relates  to  the awarding  of  the costs of Rs.30 lacs by the  Special  Court against  Hiten Dalal.  Arguing the appeal on behalf of Hiten Dalal,  Mr.  Ganesh contended that he has serious  objection to the award of the huge costs of Rs.30 lacs to Standard and Chartered  Bank.  He contended that it was the Standard  and Charted  Bank which has led evidence for all along 33  days, the Special Court has given special findings that except for PW-4   the  other  witnesses  of   the  bank  had  lied   or prevaricated  and  in respect thereto severe strictures  had been  passed.  As many as 11 claims put up by the  appellant bank  had  been rejected by the Special Court and  that  the

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Special  Court  had also found that the appellant  bank  had constantly  shifted their stand.  It was contended that  the award of costs of Rs.30 lacs was grossly excessive and Hiten Dalal should not have been directed to pay this amount.

     The  Special Court observed that it did not doubt that the  appellant bank had incurred costs of over Rs.2  crores. It then held that this was not a fit case where actual costs should be awarded but it restricted the costs to Rs.30 lacs. This  represents 15 per cent of the costs actually  incurred by  the appellant bank.  It is to be noted that the plea  of Dalal  was  that securities had been taken away from him  by the  appellant  banks officers by force and coercion.   The appellant  bank had, therefore, to lead evidence to disprove this  case  and to prove the circumstances under  which  the letter  dated  11th  May, 1992 Ex.  G was  executed.   The appellant  banks  claim of loss of about Rs.280 crores  has been  upheld  and this being so the decision of the  Special Court  awarding  costs  of Rs.30 lacs cannot in any  way  be

findings  as  incorrect.  As a consequence of the  aforesaid discussions and findings it follows that:

     1]  In  Civil  Appeal  No.762 of 1999,  filed  by  the Standard Chartered Bank and Another:

     a)  The decision of the Special Court holding that the appellants  had  been  able to prove loss to the  extent  of Rs.280.80 crores is affirmed.

     b) Bonus shares, dividend and interest were accretions to the pledged stock and have to be regarded as forming part of  the  pledged property which could not be ordered  to  be handed over unless redemption takes place.

     c)  We  hold  that the letter dated  11th  May,  1992, addressed  by  Hiten P.  Dalal to the appellants  created  a pledge in their favour not only of the shares and debentures worth  Rs.105 crores, particulars of which were given in the said  letter,  but  also on the bonus shares,  dividend  and interest accrued on the said pledged shares and debentures.

     d)   In   reduction  of   Dalals  liability  to   the appellants,  they are entitled to sell the original  shares, rights  shares  and the bonus shares and also to retain  the dividend and interest accrued on the original shares.

     e)  Cantriple  Units referred to in the  letter  dated 11th  May,  1992  representing transaction value  of  Rs.205 crores  shall be returned to the custodian and his retention would  be  subject to the out come of the other  proceedings including  Miscellaneous Application No.  36 of 1993 and the appellants  and  other parties would be entitled to try  and establish their rival claims to the said units.

     f)  The  observations made by the Special  Court  with regard  to the conduct of the appellants and their employees do not call for any interference.

     g)  The award of costs by the Special Court for  Rs.30 lacs against Hiten P.  Dalal is affirmed.

     2]  Appeal  No.762  of 1999 is partly allowed  to  the extent indicated above.

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     3]  Appeal No.1878 of 1999, filed by Hiten P.   Dalal, stands dismissed.

     Parties to bear their own costs.