CANBANK FINANCIAL SERVICES LTD. versus THE CUSTODIAN AND ORS.

Citation: [2004] SUPP. 4 S.C.R. 60 · Decided: 03-09-2004 · Supreme Court of India · Bench: N. SANTOSH HEGDE · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
CANBANK FINANCIAL SERVICES LTD. 
v. 
THE CUSTODIAN AND. ORS. 
SEPTEMBER 3, 2004 
B 
[N. SANTOSHHEGDE, S.B. SINHA AND A.K. MATHUR, JJ.] 
c 
D 
E 
F 
G 
H 
The Special Courts (Trial of Offences Relating to . Transactions in 
securities) Act, 1992. 
Sections 3, 4, 9A and I 3-Units with stipulation making their transfer 
impermissible-Application for investment by some entities in own name-
However, consideration for allotment paid by a stock broker and certificates 
· of units as well as interest thereon, though first received by those entities, 
later handed over to stock broker-Transfer of these units by stock broker 
in discharge of his liabilities towards another person who . also paid 
remaining consideration for units-Validity and legality of-Held: Stipulation . 
. making transfer impermissible was not absolute legal bar-Units were 
valuable securities capable of being transferred in terms of established · 
business practice, Sale of Goods Act, 1930 or Transfer of Property Act, 
I BB2-Stock broker had transferable beneficial interest in units as cestui qui 
trust was created for his benefit-It was not a case of benami transaction and 
Benami Transactions (Prohibition) Act, 19BB not applicable-There was no 
statute forbidding either those entities from entering this transaction or 
precluding the stock broker from transferring his interest to ano.ther person, 
and both the transactions were legal-The arrangement may be unethical but 
not illegal-As the transfer· took place before coming into force of the' 1992 
Act, stock broker had no interest therein which could have been attached by 
Custodian appointed under that Act-C,anbank Mutual Fund (CANCIGO) 
Scheme, J9BB, Conditions 2(k), 2 (r) 5, JO, 19, 22 and 24-Indian Trusts 
Act, JBBB, Sections 7, 58, 82 and BB-Transfer of Property Act, 18B2, 
Sections 6(d) and JO-Sale of Goods Act, 1930, Sections 4, 19 and 20-
Benami Transactions (Prohibition) Act, I 9B8, Section 3, 4 and 5. 
Role of Custodian-His rights are same as that of notified person-
Properties of latter neither vest in him nor is he permitted to deal with any 
property which did not belong to latter on the relevant date-He is not a 
receiver within the meaning of provisions of Code of Civil Procedure or an 
Official Receiver or an Official Assignee under the Insolvency laws-He is 
60 
." 
CANBANKFINANCIAL SERVICES LTD. v. CUSTODIAN 
61 
also not Official Liquidator under the Companies Act. 
Section 3(3)-Attachment of properties of notified person-It is subject 
to an encumbrance, if any-Even if a limited right is transferred by a notified 
person to a third party, the order of attachment must be subject to the said 
right of the third party-Under all circumstances the right of a third party 
must be recognised. 
Section 9A-Statutory attachment of properties of notified person-All 
claims relating thereto must be adjudicated by Special Court only. 
Sale of Goods Act, 1930-Right, title and interest in movable property--
It passes by delivery of possession and upon paying of consideration unless 
the transaction is forbidden under Section 23 of Contract Act, 1872. 
Benami Transactions (Prohibition) Act, 1988-Scope and applicability 
of Discussed. 
Indian Trusts Act, 1888-Section 88-Fiduciary character-Discussed. 
Maxims: Cesti qui trust-It is synonym with beneficiary and covers 
cases falling under Sections 82 and 88 of Indian Trusts Act, 1888. 
Words and phrases-Trust--:Creation, annexed obligations, nature, 
transferability and remedies-Meaning of-In context of Indian Trusts Act, 
1888. 
A 
D 
E 
Appellant and CBMF are subsidiary companies of same nationalised 
bank. CBMF floated a scheme of investment in units, named 'CANCIGO' 
F 
with a stipulation making their transfer impermissible. Respondent No. 
4, another nationalized bank and Respondent No. 3, its wholly owned 
subsidiary, on request of Respondent No. 2, a registered stock broker 
applied for those units aggregating to face value of Rs. 33 crores. 
However, application money for purchase of those units was paid by 
Respondent No. 2 himself, and certificates of those units as well as interest 
thereon, though first received by Respondent Nos. 3 and 4, were also 
later handed over to him-the latter two not claiming any right, title or 
interest therein. In respect of purchase/sale of shares and securities of 
several companies, there were diverse dealings between the appellant 
G
I 
and Respondent No. 2, and Rs 25,01,67,129 was due and payable by 

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