REPORTABLE      

   IN THE SUPREME COURT OF INDIA     CIVIL APPELLATE JURISDICTION

   CIVIL APPEAL NO.5173 OF 2004

NARESH K. AGGARWALA & CO.       ...APPELLANT(S)

VERSUS

CANBANK FINANCIAL SERVICES LTD. & ANR.   ...RESPONDENT(S)

    J U D G M E N T

SURINDER SINGH NIJJAR, J.

1. This  Statutory  First  Appeal  under  Section  10  of  the  

Special Court (Trial of offences relating to Transactions in  

Securities) Act, 1992 (in short the ‘Special Court Act’ ) is  

directed against the judgment and decree dated 15.4.2004 passed  

by the Special Court at Bombay in Suit No.4 of 1998.

2. The aforesaid suit was initially filed by the appellant in  

the High Court of Delhi at New Delhi on its original side being  

Suit No.1827/1993.  It was transferred to the Special Court in  

view of the appellant being notified on or about 17.6.1997  

under the provisions of the Special Court and thereafter the  

suit was numbered as Suit No.4/98 before the Special Court.  

The appellant had prayed for money decree in the amount of  

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Rs.3,18,06,868/- together with interest at the rate of 24%.  

Respondent  No.1,  Can  Bank  Financial  Services  Limited,  had  

opposed the claim and also lodged a counter claim, claim and  

decree in the amount of Rs.2,53,75,000/- from the appellant  

with interest w.e.f. 22.4.1992.   The appellant claims to be a  

stock broker, being a sole proprietory concern of Mr. Naresh K.  

Aggarwala.  The respondent No.1, Can Bank Financial Services  

Limited, is a wholly owned subsidiary of Canara Bank.

3. The appellant had prayed for a decree against respondent  

No.1 in respect of net amount payable arising out of two sets  

of transactions in shares i.e.; (i) two transactions in the  

shares  of  Reliance  Industries  Limited  (RIL)  (ii)  one  

transaction  in  respect  of  Steel  Authority  of  India  Limited  

(SAIL).    It  is  claimed  that  on  14.2.1992  a  contract  was  

entered into between the appellant and Can Bank for purchase of  

one lakh shares of RIL at a price of Rs.154 per share inclusive  

of all charges.  On 23.3.1992 another contract was entered into  

by the appellant with Can Bank for purchase of one lakh shares  

of RIL at a price of Rs.375 per share net. On 27.2.1992 another  

contract was entered into by the appellant for purchase of five  

lakh shares of SAIL at a price of Rs.51 per share net and a  

contract note was issued. In the plaint it was averred that of  

the two lakh RIL shares purchased by the appellant only one  

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lakh shares were delivered by respondent No.1.  These shares  

according  to  the  appellant  were  appropriated  towards  the  

contract dated 14.2.1992.  It was the case of the appellant  

that the balance one lakh RIL shares pursuant to contract dated  

23.3.1992  have  not  been  delivered  by  respondent  No.1.  

According to the appellant, respondent No.1 had been wrongly  

claiming  that  the  entire  two  lakh  shares  had  been  duly  

delivered to the appellant.  The appellant claims that this  

fact is amply borne out from the various letters written by  

respondent No.1 to the appellant wherein respondent No.1 claims  

to have delivered one lakh shares to its Bombay office and the  

remaining one lakh shares allegedly to a broker/one Mr. Hiten  

P. Dalal.  The appellant states that on inquiry Mr. Dalal has  

sated  that  no  such  shares  had  been  delivered  on  behalf  of  

respondent No.1.  In communication dated 07.08.1992 respondent  

No.1  acknowledges  only  one  delivery  and  seeks  intimation  

whether his broker, Mr. Hiten P. Dalal, on their account has  

delivered one lakh shares or not.  Therefore respondent No.1  

is,  in  fact,  aware  that  no  such  delivery  had  been  made.  

Respondent No.1, in fact, in its communication dated 15.09.1992  

acknowledges the factum of both the contract notes.  In letter  

dated 28.09.1992, the appellant reiterated that at no stage it  

had received any share from Mr. Hiten P. Dalal on account of  

respondent No.1.  It was also stated that Mr. Hiten P. Dalal  

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had confirmed that he had not given any Reliance shares on  

account  of  respondent  No.1  to  the  appellant.   It  was  also  

averred  that  in  spite  of  assurances  having  been  given  by  

respondent No.1 from time to time, the balance one lakh shares  

were not delivered.  

4. It was further claimed by the appellant that on 27.07.92  

respondent No.1 was requested that the transaction with regard  

to the SAIL shares should have been squared up at the time when  

the  shares  were  purchased.   They  were  priced  at  Rs.51  per  

share.   The  market  rate,  according  to  the  appellant,  on  

27.7.1992 was Rs.130 per share.  Therefore appellant asked the  

respondent No.1 to credit Rs. 79 per share for five lakh shares  

of SAIL to the account of the      appellant-company.  The  

appellant claimed that by letter dated 17.09.1992 respondent  

No.1 resiled from the contract regarding sale of shares of  

SAIL.  The appellant therefore by letter dated 19.09.1992 once  

again requested for the cooperation of the respondents as the  

delivery had to be effected within reasonable period of time to  

avoid  substantial  losses.   In  this  letter  the  appellant  

reiterated that one lakh shares only had been delivered and no  

other delivery had been made in respect of Reliance shares.  

Against  contract  note  dated  14.02.1992  Rs.1,54,000/-  was  

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credited to the account of respondent No.1 but the respondent  

No.1 reiterated its stand in the letter dated 17.9.1992.   

5. The appellant further stated that on 27.05.1993 respondent  

No.1 issued a notice demanding an amount of Rs.2,56,25,000/- on  

the basis of account maintained up to 08/02/1992. By letter  

dated 14.06.1993 the appellant informed the respondent No.1  

that after reconciliation of the account, the appellant was  

liable  to  be  paid  by  respondent  No.1  an  amount  of  

Rs.2,59,75,000/-.  It was further claimed that according to the  

statement of account of the appellant as on 31.7.1993 an amount  

of Rs.3,18,06,868/- is due to the appellant from respondent  

No.1.  According to the appellant, respondent No.1 is liable to  

pay this amount to the appellant with interest at the rate of  

24 % per annum.  

6. Respondent  No.1  in  his  written  statement   took  a  

preliminary  objection  stating  that  the  suit  is  wholly  

misconceived  and  a  fictitious  claim  has  been   put  forward  

solely with the intention of delaying or avoiding payment of a  

sum of Rs.2,53,75,000/- and interest thereon to the answering  

respondent  No.1.   It  was  also  stated  that  along  with  the  

written statement respondent No.1 is preferring a counter claim  

against the appellant for the recovery of the aforesaid amount.  

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The averments made in paragraph 1 to paragraph 6 of the plaint  

were admitted by the respondents.   

7. With regard to the other averments, it is however stated  

that as averred by the appellant in the plaint both the parties  

were maintaining running accounts with regard to the business  

transactions with each other.  The contracts dated 14.2.1992  

and  23.3.1992  are  admitted.   It  is  however  claimed  by  the  

respondents that the contract dated 14.2.1992 was cancelled  

rescinded by the appellant on the very day, namely, 14.2.1992.  

It was also claimed that the claim made by the appellant with  

regard to the running account is not correct.  The running  

account  maintained  by  respondent  No.1  shows  a  sum  of  

Rs.2,53,75,000/- as due from the appellant on 31.3.1993.  Hence  

the counter claim had been preferred in the written statement  

itself.  It is however, claimed that since the contract dated  

14.2.1992  was  cancelled,  there  was  only  one  contract  in  

existence i.e. contract dated 23.3.1992 against which delivery  

had been made.  Therefore, nothing is payable by respondent  

No.1 to the appellant on account of this contract.  The version  

of the communication between respondent No.1 and Shri Dalal as  

given by the appellant is denied.  The query dated 7.8.1992 was  

necessitated to make sure that no wrong delivery or excess  

delivery was made by the broker, Shri Dalal, in respect of the  

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cancelled contract dated 14.2.1992.  The appellant has tried to  

take undue advantage of the query made by respondent No.1 for  

the purpose of keeping the record straight.  The appellant had  

admitted the non-existence of the contract dated 14.2.1992 and  

did  not  show  the  amount  as  outstanding.   This  position  is  

confirmed by the appellant in the statement of account signed  

on 17.7.1992 and again reconfirmed on 24.8.1992.  It is only  

after the inquiry by respondent No.1 dated 15.9.1992 about the  

position of one lakh shares that appellant got the  mala fide  

idea of seeking illegal advantage of the cancellation entry  

having  been  recorded  in  respondent  No.1  books.   This  is  

particularly so because by then the share prices had gone up.  

Under these circumstances the appellant submitted a revised  

statement of account on 19.9.1992.   According to respondent  

No.1 the averments made in the plaint by the appellant do not  

convey the true position.  Once the contract dated 14.2.1992  

was  cancelled,  the  question  of  delivery  did  not  arise.  

Therefore  nothing  is  payable  by  respondent  No.1  to  the  

appellant on account of the contract dated 14.2.1992.   

8. With regard to the contract in relation to SAIL shares,  

the fact that the appellant entered into a deal with respondent  

No.1 on 27.2.1992 for purchase of five lakh shares of SAIL at  

the price of Rs.51 is admitted.  It was however denied that a  

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contract note was issued to evidence the transaction.  It is  

stated that the contract note was neither in accordance with  

the prevalent practice, nor in accordance with the rules and  

bye-laws of the Delhi Stock Exchange and the contract note is  

also  opposed  to  the  law  including  the  Securities  Contracts  

(Regulation) Act, 1956 and hence void ab initio.  It is further  

stated that the irregularity of the contract note was admitted  

by the appellant himself in his letter dated 27.7.1992.  It is  

submitted that the contract itself being contrary to law, no  

amount could be claimed by the appellant against this contract.

9. In the counter claim it was pleaded that the appellant has  

admitted in paragraph 8(a)(i) that on 23.3.1992 a contract was  

entered  into  between  respondent  No.1  and  the  appellant  

whereunder the respondent No.1 agreed to sell and the appellant  

agreed  to  purchase  one  lakh  shares  of  Reliance  Industries  

Limited on 23.3.1992 at Rs.375 per share.  This averment is  

affirmed by respondent No.1.  According to the respondent No.1  

the aforesaid one lakh shares were delivered by respondent No.1  

to  appellant  on  22.4.1992.   This  delivery  has  also  been  

admitted by the appellant.  It is further stated that appellant  

had wrongly contended after a long lapse of time that this  

delivery  was  in  respect  of  another  alleged  contract  dated  

14.2.1992.  The appellant, according to respondent No.1, has  

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illegally and wrongly accounted for its liability to pay to  

respondent No.1 in respect of one lakh shares sold on 23.3.1992  

only at Rs.154 per share instead of Rs.375 per share.  Thus the  

difference between the rate per share at Rs.375, which was the  

actual contract rate, and the rate at which the appellant has  

accounted for i.e. Rs.154 per share comes to Rs.2,21,00,000/-.  

According to respondent No.1 this amount is payable by the  

appellant to the respondent No.1 with interest.  It is accepted  

that there were dealings between the appellant and respondents  

and  the  accounts  were  settled  periodically.   Therefore  on  

31.3.1993 the statement of mutual account between the parties  

shows that a sum of Rs.2,53,75,000/- is due and payable by the  

appellant to the respondent No.1.  The interest at the rate of  

24%  from  22.4.1992  till  31.5.1994  amounts  to  

Rs.1,28,47,397.26/- which is also due and payable.  

10. In  its  replication  the  appellant  has  reiterated  the  

averments made in the plaint.  It is stated that the counter  

claim is frivolous and is to delay and avoid payment of the  

contractual obligations, of respondent No.1.  The appellant  

reiterates that the only one lakh shares of RIL were delivered  

against  contract  dated  14.2.1992.   It  is  denied  that  the  

contract dated 14.2.1992 was cancelled by the appellant.  It is  

further reiterated that the respondent No.1 is liable to make  

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delivery of the remaining one lakh shares; contract is to be  

purchased by the appellant vide contract note dated 23.3.1992.  

It is further stated that the appellant is still ready and  

willing to perform his part of the contract but the respondents  

are trying to wriggle out of their contractual obligations.  

11. On the basis of the pleadings the Special Court framed the  

following issues:   

“1. Whether  Plaintiffs  prove  that  Rs.2,59,75,000/-  money is due from and payable by Defendant No.1 on  account of transactions undertaken on behalf of or with  Defendant No.1 after accounting for all transactions in  the running account as alleged in para 7 of the Plaint?

2. Whether Plaintiffs have correctly appropriated one  Lac shares delivered towards the contract note dated  14.2.1992 (i.e. for Reliance Industries Ltd. shares)  purchased @ of Rs.154/- as alleged in para 8a (ii) of  the Plaint?

3. Whether the Plaintiffs prove that no shares were  received from the broker of Defendant No.1 towards the  Contract dated 23.3.1992 as averred by the Plaintiffs  in para No.8a (iv) of the Plaint?

4. Whether the Plaintiffs have correctly given credit  of Rs.154/- per shares for one Lac shares delivered and  since one Lac shares have not been delivered as alleged  in para 8a (v) of the Plaint?  

5. Whether the Contract dated 14th February 1992 for  purchase of 1,00,000 shares at the rate of Rs.154/- per  share of M/s. Reliance Industries Ltd. placed by the  Plaintiffs on Defendant No.1 was cancelled/ rescinded  as alleged by Defendant No.1 as alleged in paras 8 and  9of the Written Statement?

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6. Whether Plaintiffs’ contract note dated 27.2.1992  (SAIL) had been issued as per prevalent practice as  alleged in para 8b (ii) of the Plaint?  

7. Whether  Defendant  No.1  by  its  letter  dated  17.9.1992 has resiled from its contractual obligations  as alleged in para 8b (vi) of the Plaint?

8.  Whether the Plaintiffs are entitled for a decree  or Rs.3,18,08,868/-?   

9. Whether the Plaintiffs are entitled for interest  at the rate of 24%  per annum?

10. Whether Defendant No.1 is entitled to payment of  Rs.2,53,75,000/- with interest as claimed in paras 1 to  4 and 8 of the Counter Claim?

11. What orders and decree?”  

12. The Special Court notices that both the parties have filed  

documents.  On behalf of the appellant one witness has been  

examined.  The respondent No.1 has not led any evidence.  It is  

also noticed that some documents have been admitted in evidence  

by consent of the parties.  Issues Nos.2 to 5 were taken up  

together as they relate to the transactions in RIL shares.  All  

these issues have been decided in favour of respondent No.1 and  

against the appellant.  It is further held that the transaction  

dated 27.2.1992 was illegal and therefore is not capable of  

being enforced.  Therefore issues No.6 and 7 have also been  

decided against the appellant. Issues Nos. 1, 8 and 9 have also  

been decided against the appellant.  It has been held that the  

appellant is not entitled to make any claim neither in relation  

to RIL shares nor in relation to SAIL shares.  So far as issue  

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No.10 is concerned, the Special Court has clearly held that the  

counter  claim  of  respondent  No.1  succeeds  and  is  allowed.  

Therefore, a decree in an amount of Rs.2,53,75,000/- with an  

interest at the rate of 12% per annum from 22.4.1992 till the  

date  of  realisation  is  passed  against  the  appellant.   The  

appellant  was  also  directed  to  pay  costs  entitled  to  the  

respondents.  

13. The present appeal has been filed by the appellant being  

aggrieved by the aforesaid judgment and decree.  Mr. Rupinder  

Singh Suri, learned Senior Counsel for the Appellant, had made  

elaborate submissions in Court which have been reiterated in  

the  written  arguments,  filed  later.   He  submits  that  the  

impugned judgment in addition to being totally contrary to the  

facts, records and law in general, is a classic case wherein  

the prejudice against the appellant is writ large, owing to the  

fact  that  he  is  a  notified  person.  The  Special  Court  has  

totally disregarded the evidence adduced by the appellant in  

support of its case.  The counter claim has been erroneously  

decreed  merely  on  surmises  and  conjectures.   It  is  also  

submitted that the interest at the rate of 12% w.e.f. 22.4.1982  

till realisation has been illegally granted without there being  

any evidence in support.  In support of his submission, Mr.  

Suri,  has  relied  on  numerous  documents  which  were  on  the  

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record.  Mr. Suri has placed heavy reliance on the letter dated  

7.8.1992 which pertains to the statement of account between the  

parties for the period 1.4.1991 to 25.7.1992.  According to the  

learned counsel this letter will show that only one lakh shares  

of RIL had been delivered.  Therefore, respondent No.1 was  

seeking  confirmation  that  only  one  lakh  shares  had  been  

received by the appellant.  This letter would also show that  

respondent  No.1  had  intimated  that  suitable  decision  with  

regard to contentions of the appellant on SAIL shares will be  

given in due course.  He then made a reference to letter dated  

15.9.1992  written  by  one  Ashok  Kumar  Kini,  Executive  Vice-

President of respondent No.1 wherein he stated that there were  

two contract notes.  This letter shows that even according to  

respondent No.1 the physical delivery of one lakh shares at  

Rs.375/- was made by the office of respondent No.1 at Bombay  

and one lakh shares at Rs.154/-  of RIL were delivered by Mr.  

Hiten P. Dalal  on its behalf.  The appellant had replied to  

the aforesaid letter on 19.9.1992 and reiterated that only one  

lakh  shares  had  been  received.   According  to  Mr.  Suri  on  

21.9.1992 respondent No.1 wrongly claimed that appellant had  

all  along  been  maintaining  that  there  was  only  one  deal.  

Therefore appellant through letter dated 28.9.1992 reiterated  

its stand that on checking its account there seemed to have  

been no record of receipt of any share from Hiten P. Dalal.  

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Mr. Suri further submitted that in the written statement in  

paragraph  8  respondent  No.1  had  wrongly  claimed  that  the  

contract dated 14.2.1992 had been cancelled.  In fact there was  

no evidence led by respondent No.1 on issue No.5 which was  

relevant to this claim.  In support of this learned counsel  

relied on extract of the account for the period 1.4.1991 to  

31.3.1992 which shows the existence of both the transactions.  

Therefore according to Mr. Suri the respondent No.1 has wrongly  

claimed that contract dated 14.2.1992 was cancelled.  Finally  

it is submitted by Mr. Suri that one lakh shares were adjusted  

against the contract dated 23.3.1992 on the basis of trade  

practice.  As the appellant is a broker he has corresponding  

commitments to every client.  Mr. Suri submits that the Special  

Court has wrongly concluded that it was for the appellant to  

prove that the contract dated 14.2.1992 was not in existence.  

Mr.  Suri  further  submitted  that  learned  Special  Court  has  

wrongly concluded that the contract with regard to SAIL shares  

being itself illegal could not be enforced in law.  In fact  

respondent No.1 had all along maintained that contract note  

dated 27.2.1992 would be honoured in due course.  It is only on  

17.9.1992  that respondent No.1 for the first time tried to  

wriggle out of the contract by stating that the transaction was  

against law and hence void and unenforceable.  According to Mr.  

Suri this plea is not acceptable and there is no bar in law for  

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entering into such a contract.  The reliance placed by the  

Special  Court  on  the  circular  dated  27.6.1969  is  totally  

misplaced and contrary to the facts of the case.  According to  

learned senior counsel, Mr. Suri, the circular would not be  

applicable to sale/purchase of securities on a contract for  

cash.  It was for this reason that statement of account of  

respondent No.1 would show that the contract was alive till at  

least 31.3.1992 when it was reversed in the books of accounts.  

This, according to Mr. Suri, was just a ploy on the part of  

respondent  No.1  to  escape  its  liability  under  the  contract  

dated  27.2.1992.   Mr.  Suri  submitted  that  the  bias  of  the  

Special Court is evident from the manner in which only selected  

pieces of evidence have been used to decree the counter claim  

of respondent No.1.  The evidence, which was in favour of the  

appellant, had been ignored by the Special Court.  According to  

Mr. Suri this was clearly due to the undue importance attached  

by the Special Court to the facts that appellant is a notified  

person under the Act.  It is further submitted by Mr. Suri that  

there was no legal justification for awarding 12% interest to  

respondent No.1 w.e.f. 22.4.1992 as there was no evidence in  

support of such a claim.  In any event the Special Court could  

only grant interest from the date of the filing of the counter  

claim and not from an earlier date.  Mr. Suri submitted that  

the Special Court also erred in law in coming to the conclusion  

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that the requisite averments to constitute a suit for damages  

are  absent  in  the  present  case.   According  to  Mr.  Suri  a  

perusal of the plaint would clearly show that it is a case for  

damages  arising  out  of  breach  of  contract  on  the  part  of  

respondent No.1.  Mr. Suri then submitted that the Special  

Court  has  wrongly  drawn  an  adverse  inference  against  the  

appellant on account of non-production of the “sauda books”.  

According to the learned senior counsel the  sauda books were  

not at all relevant for proving the case of the appellant.  

There was ample evidence on record to show that respondent No.1  

was guilty of breach of contract.  Therefore, respondent No.1  

was liable to make good the damages suffered by the appellant.  

The appellant having produced the best evidence available, it  

was not necessary to produce the sauda books at all.  Therefore  

the learned Special Court has wrongly concluded that the best  

evidence rule would be applicable in the facts of the present  

case.   

14. On the other hand, Mr. Bhushan, learned senior counsel,  

submits that the findings of the Special Court are based on  

clear and cogent evidence.  He has also made reference to the  

correspondence  between  the  parties  and  submitted  that  the  

entire  claim  of  the  appellant  is  based  on  a  deliberate  

misreading  of  the  same.   Learned  senior  counsel  relied  on  

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letter  dated  17.7.1992  which  shows  that  by  that  time  the  

Reliance  shares  were  not  on  issue.   This  letter  has  been  

written by the appellant to respondent No.1 and talks only of  

the  SAIL  shares.   In  this  letter  appellant  has,  in  fact,  

admitted  that  the  contract  with  regard  to  SAIL  shares  was  

technically  incorrect  since  contract  relating  to  unquoted  

shares would be outside the purview of Delhi Stock Exchange  

Rules, By-Laws and Regulations.  It is also admitted that the  

shares at the relevant time were not quoted at any centre.  

This  admission  is  reiterated  in  the  letter  dated  18.8.1992  

seeking to make clarification in response to the letter dated  

7.8.1992.  It was confirmed by the appellant that only one lakh  

shares  of  RIL  had  been  received  from  the  Bombay  office  of  

respondent No.1 and that no delivery was received from H.P.  

Dalal.  By letter dated 20.4.1992 it was clearly stated that  

barring the outstanding transaction of five lakh shares of SAIL  

there is nothing outstanding.  Mr. Bhushan submits that the  

letter dated 15.9.1992 is being misinterpreted by the appellant  

which  is  merely  an  observation  made  by  respondent  No.1.  

According  to  Mr.  Bhushan  by  that  time  the  scam  had  been  

discovered, a new management had taken over and the letter had  

been  written  on  going  through  the  records.   Hence  it  was  

observed that against two sale contracts of RIL, for one lakh  

shares  each,  physical  delivery  had  been  given  of  one  lakh  

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shares by Hiten P. Dalal.  To take advantage of the aforesaid  

letter, the appellant writes the letter dated 19.9.1992 stating  

that there were two contracts for two lakh RIL shares.  Against  

these two lakh shares, appellant had received only one lakh  

shares  which  had  been  credited  against  the  contract  dated  

14.2.1992.  The appellant further claimed delivery of one lakh  

shares under contract dated 23.3.1992.  Having taken this stand  

in its letter dated 14.6.1993 the appellant does not claim any  

damages on account of non-delivery of one lakh shares  against  

the contract note dated 23.3.1992 at the rate of Rs.375/- per  

share.  The only plea is that delivery of one lakh shares has  

been credited against the contract dated 23.3.1992.  Therefore,  

credit due to respondent No.1 would be only Rs.1,54,00,000/-  

and not Rs.3,75,00,000/- as shown by the respondent No.1 in its  

account.  Mr. Bhushan further submits that even if the plea of  

the appellant is accepted that the transaction has been shown  

in  the  account  as  being  incomplete,  it  still  had  to  be  

reflected in the sauda books.  However during the course of the  

trial  sauda books were not produced and therefore an adverse  

inference has been drawn against the appellant.  With regard to  

the SAIL shares, Mr. Bhushan submits that the contract was  

contrary  to  law.   The  appellant  was  aware  of  this  legal  

position and admitted the same in the letter dated 27.7.1992.   

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15. Upon consideration of the submissions made by the learned  

counsel for the parties we have examined the material on the  

record.  It is not disputed before us that there were, in fact,  

two transactions with regard to RIL shares dated 14.2.1992 and  

23.3.1992.  The Special Court notices that the appellant claims  

to have adjusted the delivery of one lakh shares of RIL against  

the  contract  dated  14.2.1992  which  is  said  to  have  been  

cancelled by respondent No.1.  The Special Court also notices  

that  if  the  case  of  the  appellant  that  the  contract  dated  

14.2.1992  was  alive  is  accepted,  then  the  transaction  will  

remain incomplete and unfulfilled.  The Special Court further  

observed as follows:   

“In my opinion, even without recording any finding  as to whether the contract dated 14-2-1992 was  cancelled on the same day or not, the Plaintiff  cannot be granted any relief in relation to the  contract  dated  14-2-1992,  assuming  it  to  be  outstanding  because  the  only  relief  that  might  have been claimed by the Plaintiff if the contract  dated  14-2-1992  was  unfulfilled  contract  was  relief for damages for breach of contract.”   

16. The  Special  Court  also  upon  reading  of  the  plaint  

concludes that it is not a suit filed by the appellant for a  

decree in the amount of damages for breach of contract.  In  

our  opinion,  the  aforesaid  findings  cannot  be  said  to  be  

erroneous or based on no evidence.  In fact in paragraphs 6  

and 7 of the plaint the appellant had stated as follows:  

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“6. The plaintiff and defendant No.1 have been  doing regular business over a fairly long period  of  time  and  are  maintaining  running  accounts  respectively.

7. The present suit is in respect of recovery of  money  which  is  due  from  the  defendant  No.1  on  account of transactions undertaken on behalf of  with the defendant No.1 after accounting for all  the transactions in the running accounts and the  amount whereof has not been paid to the plaintiff  in spite of requests for the same.”  

17. In  the  face  of  these  averments,  we  find  it  a  little  

difficult to appreciate the submission of Mr. Suri that the  

findings on these issues are erroneous or not supported by any  

evidence.  The Special Court also notices that the appellant  

had,  in  fact,  adjusted  the  delivery  of  shares  towards  the  

contract dated 23.3.1992.  It is true that in the examination-

in-chief  appellant  had  stated  that  he  had  made  the  claim  

against respondent No.1  on the basis of difference in price  

of Reliance shares as on 14.2.1992 and as on 23.3.1992, i.e.,  

Rs.375-Rs.154  for  one  lakh  shares.   In  our  opinion,  the  

Special Court has correctly observed that in the absence of  

pleadings  the  statement  made  by  the  appellant  had  to  be  

ignored.  We are also unable to accept the criticism of Mr.  

Suri  that  the  burden  of  proving  the  continuance  of  the  

contract dated 14.2.1992 was not on the appellant.  We may  

notice here that respondent No.1 had taken a categorical plea  

that contract dated 14.2.1992 was cancelled by appellant on  

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the same day.  The conduct of the appellant showing delivery  

made  on  22.4.1992  as  delivery  against  the  contract  dated  

23.31992  indicated  that  he  was  also  treating  the  contract  

dated 14.2.1992 to be cancelled.  Had that not been so, he  

would have made entries in the books of account to show that  

the  delivery  of  shares  were  against  the  contract  dated  

14.2.1992. In our opinion Mr. Bhusan, has rightly pointed out  

that till 27.7.1992, the reliance shares were not in issue.  

The letter written by the appellant to the Respondent No 1  

talks  only  of  the  SAIL  shares.  Therefore  it  was  for  the  

appellant to produce documentary evidence to show that in his  

books of accounts the contract had been shown as incomplete.  

But the appellant failed to produce the necessary evidence,  

which led the Court to observe that:

“The burden was on the plaintiff to prove that the  contract dated 14.2.1992 remained incomplete. In  my opinion, therefore, it was for the plaintiff to  produce documentary evidence to show that in his  Books  of  Accounts  the  contract  is  shown  as  incomplete. It becomes necessary for the plaintiff  to  produce  the  document  to  show  that  the  transaction in his Books of accounts is shown as  incomplete.  The  conduct  of  the  plaintiff  of  showing  delivery  made  on  22.4.1992  as  delivery  made  on  23.3.1992  indicates  that  he  was  also  treating  the  contract  dated  14.2.1992  as  cancelled. Had that not been so he would have made  entries in the Book of account to show that the  delivery  of  shares  were  against  contract  dated  14.2.1992. ”   

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In our opinion the view expressed by the special Court is an  

acceptable view, and does not call for any interference.  

18. With regard to issues no 6 & 7, we again do not find any  

merit in the submissions of Mr. Suri. Admitted position is that  

on the date when the contract with regard to the SAIL shares  

was entered into, the shares were unlisted. It is also the  

admitted  position  that  on  that  day,  the  circular  dated  

27.6.1969 issued under Section 16 of the Securities Contract  

Regulation Act 1956 was in existence and in force. Relevant  

portion of the afore said circular reads as follows:  

“ S.O. 2561  In exercise of the powers conferred  by  sub-section  (1)  of  Securities  Contract  (Regulation) Act 1956 (42 of 1956) the Central  Government being of opinion that it is necessary  to prevent undesirable speculation in securities  in the whole of India, hereby declares that no  person  in  the  territory  to  which  the  said  Act  extends  shall  save  with  the  permission  of  the  Central Government enter into any Contract for the  sale or purchase of securities other that such  Spot delivery contract or Contract for cash or  Hand delivery or  Special Delivery   in any securities as is permissible under the said  act and the rules, bye laws and regulations of a  recognized Stock Exchange.”

It is thus clear from the circular that after issuance of these  

Circular, transactions into securities by (i)  Spot delivery  

contract; (ii) Contract for cash; (iii) Hand delivery and (iv)  

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Special Delivery are only permitted. The term ‘spot delivery’  

is defined in Section 2 (i) of the Act, which reads as under:-

“Spot  delivery  contract  means  a  contract  which  provides for :- (a)  actual  delivery  of  securities  and  the  payment of a price therefore either on the  same day as the date of the contract or on  the next day, the actual period taken for the  dispatch of the securities or the remittance  of  money  therefore  through  the  post  being  excluded from the computation of the period  aforesaid if the parties to the contract do  not reside in the same town or locality; (b)transfer  of  the  securities  by  the  depository from the account of a beneficial  owner when such securities are dealt with by  a depository; ”

A perusal of the aforesaid definition would show that spot  

delivery contract is the contract where actual delivery of the  

securities and the payment of price is either on the same day  

or on the next day. Admitted position is that the contract  

note issued by the appellant in relation to this transaction  

shows that it was not a spot delivery contract.

19. As  regards  the  other  types  of  contracts,  the  terms,  

contract for cash, hand delivery or special delivery are not  

defined by the Act. Therefore in terms of the circular dated  

27.6.1969 quoted above, if the rules made under the act, bye  

laws  and  regulations  of  a  recognized  Stock  Exchange  permit  

contract for cash, hand delivery or special delivery, those  

types of transactions would also be permitted by the circulars.  

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The provisions of the bye-laws of Delhi Stock exchange clearly  

permits spot delivery transaction, hand delivery transaction  

and special delivery transaction. It was noticed by the Special  

court that  

“It was not even the case of the Plaintiff that  the transaction into SAIL shares in relation to  which  contract  note  has  been  issued  by  the  plaintiff was either hand delivery, spot delivery  or special delivery contract.”

It was argued before the Special Court that the transaction was  

a  cash  delivery  contract.  The  Special  Court  negated  such  

contention, observing as follows:

“Firstly there are no pleadings to that effect.  There is no evidence to that effect and there is  no provision to          that effect either in the  Act, rules framed by the Delhi Stock Exchange.  Therefore  cash  delivery  contract  unless  it  is  permitted by the Act, bye laws and regulations of  the  Stock  Exchange  is  prohibited  by  the  circulars.”  

The  appellant  was  aware  of  the  illegality  of  the  

transaction. It is evident from the letter dated 27th of July,  

1992 written by the appellant to the respondent No.1 wherein it  

is clearly stated that “technically this was incorrect since  

contracts  relating  to  unquoted  shares  would  be  outside  the  

purview  of  Delhi  Stock  Exchange  rules,  bye-laws  and  

regulations.” In the face of such an dmission, the Special  

Court,  in  our  opinion,  has  correctly  concluded,  as  noticed  

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above. In our opinion the view expressed by the Special Court  

does not call for any interference.   

20. The contention that the circular did not apply to unlisted  

securities  was  duly  considered  and  rejected  by  the  Special  

Court.  The  Special  Court  thoroughly  considered  the  term  

‘securities’ as defined in Section 2(h) of the Act. It reads as  

under:-

“2(h) Securities include-

(i)   shares,  scrips,  stocks,  bonds,  

debentures, debenture  stock  or  other  

marketable securities of a like nature in or of  

any  incorporated  company   or  other  body  

corporate;

(ia)  derivative;

(ib)  units or any other instrument issued by  

any  collective  investment  scheme  to  the  

investors in such schemes.

(ii)   Government securities;

(iia)  such other instruments as may be declared  

by the central Government to be securities; and

(iii) rights or interests in securities; ”

Perusal of the above quoted definition shows that it does not  

make any distinction between listed securities and unlisted  

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securities and therefore it is clear that the Circular will  

apply to the securities which are not listed on the Stock  

Exchange. Admittedly the contract note issued in relation to  

this transaction by the appellant does not show that it was a  

spot delivery contract, therefore the transaction was clearly  

contrary  to  the  circular.  Consequently  in  terms  of  the  

provisions of Sub-section(2) of Section 16 the transaction was  

illegal and is not capable of being enforced.  

21. With  regard  to  issues  no  1,8  &  9,  it  was  correctly  

observed  by  the  Special  Court  that  the  Plaintiff  i.e.  

Appellant herein is not entitled to make any claim either in  

relation to the Reliance Industries Shares nor in relation to  

contract  for  SAIL  shares.  Further  as  the  appellant  is  not  

entitled to claim any amount from the respondent on account of  

the  aforesaid  transactions,  there  is  no  question  of  the  

appellant being entitled to any interest.

22. On Issue No.10, Mr.Suri has submitted that the Special  

Court has illegally allowed the counter claim of respondent  

No.1. It was submitted that the Special Court has come to a  

contrary  conclusion  even  though  the  fact  situation  was  

identical in the claim put forward by both the parties. We are  

unable to accept the submissions made by the learned senior  

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counsel.  Once  it  is  concluded  that  the  appellant  is  not  

entitled to claim any amount from respondent No.1 in relation  

to  the  aforesaid  three  transactions  i.e.  contract  dated  

14.2.1992, contract dated 23.3.1992 for one lakh RIL shares  

each and contract dated 27.2.1992 relating to one lakh SAIL  

share. It needed to be determined as to whether the appellant  

in fact needed to compensate respondent No.1. In the counter  

claim, the respondent No.1 clearly stated that the appellant  

had agreed to purchase one lakh shares of RIL on 14.2.1992 @  

Rs.154/- per share, but this contract was cancelled by the  

appellant on the very same date. Thereafter, the appellant had  

intimated  about  another  contract  for  purchase  of  one  lakh  

shares of RIL on 23.3.1992 @ Rs.375/- per share. Against the  

aforesaid contract, the delivery of one lakh shares was made  

by the respondent No.1 to the appellant on 22.4.1992. After  

the receipt of a letter dated 15.9.1992 when the Management of  

respondent No.1 had changed, the appellant started claiming  

that the delivery of one lakh shares on 22.4.1992 had been  

adjusted against the cancelled contract dated 14.2.1992. The  

respondent No.1 had based the counter claim on the difference  

of  price  in  shares  between  two  periods  of  contract  i.e.  

14.2.1992  and  23.3.1992.  The  difference  of  amount  of  

Rs.2,21,00,000/-  was  claimed  as  the  amount  due  from  the  

appellant  to  the  respondent  No.1.  A  perusal  of  the  letter  

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dated 27.5.1993, which contains a statement of account with  

the subject “settlement of outstanding” clearly shows that the  

respondent  No.1  is  claiming  a  sum  of  Rs.2,56,25,000/-  as  

outstanding against the appellant from various transactions as  

per  the  details  given  therein.  Against  the  entry  dated  

4.3.1992, there is a clear entry with regard to the sale of  

one  lakh  RIL  shares  @  Rs.375/-  per  share  given  a  total  

consideration  of  Rs.3,75,00,000/-.  The  respondent  No.1  had  

clearly requested the appellant to settle account by paying  

Rs.2,56,25,000/- immediately. In the letter dated 14.6.1993,  

the appellant offered its comment on the statement of account  

for  payment  by  respondent  No.1  on  27.5.1993.  Herein,  the  

appellant  states  that  the  credit  claimed  by  the  respondent  

No.1 should be Rs.2,21,00,000/- instead of Rs.2,56,25,000/-.  

This balance was claimed by the appellant on the ground that  

the credit claimed by respondent No.1 of Rs.3,75,00,000/- has  

to be reduced by Rs.1,56,00,000/- i.e. the difference in price  

of shares of the two contracts dated 14.2.1992 and 23.3.1992.  

The appellant also claimed that a sum of Rs.2,95,00,000/- was  

also required to be adjusted in respect of SAIL shares. The  

appellant  had  claimed  the  difference  in  contract  price  of  

shares  of  SAIL  @  Rs.51/-  per  share  against  the  official  

quotation of the Delhi Stock Exchange @ Rs.110/- per share.  

Thus he had claimed that respondent No.1 was liable to pay for  

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the difference of Rs.59/- per share (Rs.110/-Rs.51/- per share  

amounting  to  Rs.2,95,00,000).  It  was  held  by  the  Special  

Court,  which  finding  has  been  affirmed  by  us,  that  the  

contract with regard to SAIL shares being contrary to law was  

void ab initio. Therefore, the appellant could not possibly  

claim anything against the aforesaid SAIL shares on account of  

any difference in the contracted rate and the rate when the  

same were listed on the Delhi Stock Exchange. Therefore, the  

irresistible conclusion was that the appellant was liable to  

pay  to  respondent  No.1  for  the  RIL  Shares  @  Rs.375/-  per  

share,  the  contract  dated  14.2.1992  having  been  cancelled.  

Thus the Special Court, in our opinion, correctly concluded  

that the appellant was liable to pay to the respondent No.1  

the amount of Rs.2,53,75,000/-. In view of the above, we find  

no reason to interfere with the findings of the Special Court  

on Issue No.10 also.

23. We also do not find any cogent reason to interfere or to  

reduce the amount of interest awarded by the Special Court in  

the peculiar facts and circumstances of this case.  

24. Mr.Suri  had  submitted  that  the  entire  approach  of  the  

Special Court was biased against the appellant simply because  

the sole proprietor of the appellant was duly notified under  

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the Special Courts Act. We are of the considered opinion that  

the  aforesaid  submission  has  to  be  merely  stated  to  be  

rejected. The allegations of bias and mala fide had to be  

proved  by  cogent  and  clear  evidence.  In  the  present  case,  

apart from the bald submissions made by Mr.Suri, no material  

was placed on the record to indicate that the judgment of the  

Special Court was coloured, let alone being affected by any  

bias. It seems to have become a common practice these days for  

the losing party after receiving an unfavourable verdict, to  

make  allegations  of  bias  against  the  Presiding  Officer.  We  

decline to give any credence to such wild and bald submissions  

without any factual basis.

25. In view of the above, we find no merit in this appeal and  

the appeal is dismissed. No order as to costs.

 .......................J.

        [B.Sudershan Reddy]

  New Delhi;   .......................J.    May 05, 2010.     [Surinder Singh Nijjar]  

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