LexSTANDARD CHARTERED BANK AND ANR. ETC. versus CUSTODIAN AND ANOTHER ETC.
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~ STANDARD CHARTERED BANK AND ANR. ETC. A ....._ v. CUSTODIAN AND ANOTHER ETC. APRIL 18, 2000 [B.N. KIRPALAND R.P. SETHI, JJ.] B ..,. Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 Sections 3(2) read with Sections 3(3), 5, 9-A and 11-Custodian constituted under the Act notifying name of R-2, a share broker, under Section 3(2)-Custodian calling upon the appellant either to hand over shares c belonging to R-2 or to obtain appropriate order from the Special Court constituted under the Act-Appellant claimed to have made investments in ). securities through R-2 but the same was not backed by securities and banker's receipt-Appellant claiming title and interest in certain shares and securities worth Rs. 145 crores received from R-2, filed a suit for a declaration that R- D 2 had no right, title or interest in the said shares on the date of the notification-Appellant also claiming that the said shares were validly pledged in favour of the appellant bank and the said shares could be adjusted against the admitted liability of R-2 through a letter dated 11.5.1992-Held, Special Court had to be satisfied by independent evidence and not merely on the basis of the admission of R-2 that appellant had suffered loss-On facts, E held, appellant had suffered loss which could enable it to retain and dispose off the shares and debentures which had been pledged to it by R-2 and - therefore, Custodian cannot ask the appellant to hand over the same-Also, R-2 had created a pledge in favour of the appellant not only of the shares and securities but also of the bonus shares, dividend and interest accrued on the F pledged shares-Bonus shares, interest and dividend were accretions to the pledged shares and securities which could not be ordered to be handed over to R-2 unless redemption took place-Further, appellant was entitled to sell all the original shares and stock handed over by R-2 and also to retain the ... dividend and interest accrued on such original shares and securities-Also held, in view of the loss suffered by appellant, award of costs of Rs. 30 lacs G '"" in favour of appellant against R-2 was justified. Companies Act, 1956-Bonus Shares-Nature of and when to be issued. Contract Act, 1872-Sections 148, 160, 163, 172, 174 & 176-Bailment of property for securing payment of debt-Held, bailor has a duty to return the H 81 A B c D E F G H 82 SUPREME COURT REPORTS [2000) 3 S.C.R. pledged goods on repayment of debts-In case of increase in the value of goods pledged, pledgee is entitled to the increase as integral part of his secwity- Thus in case of shares and debentures pledged with the bank as security, dividend and interest accrued on such pledged shares and debentures fanned part of the pledged secwity-Such accretions is to be returned by pledgee- However, in case of default in payment of debt, a pawnee also has the right to sell the accretion along with the original goods pledged after due notice. Worm and Phrases-Worm "bonus shares"-Meaning of With a view to deal with large scale mal-practices in transactions in Government and other securities indulged in by some brokers in collusion with employees of banks and financial institutions and in particular to ensure speedy recovery of the huge amounts from the individual account of certain brokers, the Special Court (Trial of Offences Relating to Transac- tions in Securities) Ordinance, 1992, followed by an Act was passed. Section 3 of the Act enabled the Central Government to appoint one or more Custodian having an authority to notify the name of any person involved in any offence relating to transactions in security, to notify in the official gazette. Under Section 3(3), movable and immovable properties of such notified persons stood attached simultaneously with the issue of the notifi- cation and was to be dealt with by the Custodian in such manner as the Special Court established under Section 5 of the Act, presided over by the sitting Judge of the High Court, so directed. Name of R-2 was notified by R-1 who came to know that some shares and securities belonging to R-2 were in appellant bank and that the appel- lant had got some of the shares transferred to its name. R-1 directed R-2 either to hand over possession of shares and securities to R-1 or to obtain appropriate direction from the Court in case the appellant claimed any title to the said shares. Thereafter, A
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