07 Apr 2121

A Bank registered under the provisions of the Maharashtra Co-operative Societies Act, 1960 is required to invest 15% of its net demand and time liabilities in government and other approved securities - Bombay High Court

Case : Cosmos Co-operative Bank Ltd. v. M/s Giltedege Management Services Ltd. And Ors. First Appeal No. 361 of 2010

Court : Bombay High Court

Bench : Justice A.S. Chandurkar and Justice Pushpa V. Ganediwala

Decided on : 07 Apr 2121

Relevant Statues

Section 96, Order VI Rule 4 and Order I Rule 3 of the Code of Civil Procedure, 1908

Section 164 of the Maharashtra Co-operative Societies Act, 1960

Sections 2(2) and 2(7) of the Sale of Goods Act, 1930

Sections 34, 120B, 205, 406, 409, 420, 467 and 470 of the Indian Penal Code, 1860

Sections 451, 457 of the Code of Criminal Procedure, 1973

Sections 172, 173, 174, 175 and 176 of the Indian Contract Act, 1872

Brief Facts & Procedure History

1. The relevant seminal facts refer to the parties as per their status before the trial court where the Plaintiff, Cosmos Co-operative Bank Ltd. is a bank duly registered under the provisions of the Maharashtra Co-operative Societies Act, 1960 and is required to invest 15% of its net demand and time liabilities in government and other approved securities.

2. The plaintiff had entered into transactions dated 15.01.2002 and 28.02.2002 with defendant number 1, M/s Giltedege Management Services Ltd. and defendant number 2, Ketan Kantilal Seth. The said Defendants are required to sell the Security Numbers 2 and 4 to Plaintiff after having purchased Security Numbers 1 and 3 from it. The said Defendants failed to physically deliver Security Numbers 2 and 4 as agreed. Also, during the course of the investigation in Crime No.75/2002, the Maharashtra Krishna Valley Development Corporation Bonds worth Rs.1,50,00,000/- were in possession of Defendant Number 7, Janata Sahakari Bank Ltd. which belonged to the plaintiff.

3. The trial court by the judgment dated 25.01.2010 in Special Civil Suit No.165/2002 the suit for return of Government Securities sold by the plaintiff or in the alternate for recovery of the value of the securities to the tune of Rs.12,75,86,403.67/- has been dismissed.

4. Hence, this appeal under Section 96 of the Civil of Procedure Code, 1908 has been preferred by the unsuccessful plaintiff who claims to be a victim of the “Government Securities Scam” in Maharashtra.

The Issues of the Case

Whether Plaintiff had entered into a transaction dated 15.01.2002 with Defendant Number 1 for sale of Security Number 1 and in lieu thereof the Defendant Number 1 was to sell Security Number 2 to it?

Whether Plaintiff had entered into a transaction dated 28.02.2002 with the Defendant Number 1/Defendant Number 3 for sale of Security Number 3 and in lieu thereof the Defendant Number 1/ Defendant Number 3 was to sell Security Number 4 to it?

Whether the transactions dated 15.01.2002 and 28.02.2002 were in the nature of sale and purchase of securities as urged by the Plaintiff or they were transactions of exchange as held by the Trial Court?

Whether the plaintiff is entitled to return of Security Numbers 1 and 3 or the alternate relief of value of those Securities from the Defendants?

Whether Defendant Number 7 has a banker’s lien over Maharashtra Krishna Valley Development Corporation Bonds being security furnished by Defendant Number 2?

Whether the suit is bad for the non-joinder of necessary parties?

Whether the suit is bad against Defendant Number 7 for want of notice under Section 164 of the Maharashtra Co-operative Societies Act, 1960?

Whether the trial Court was justified in relying upon various Circulars and Notifications without furnishing an opportunity to the parties to address it on the same?

Whether the dismissal of the suit with costs was justified?

Whether the Court of 4th Joint Civil Judge, Senior Division was competent to decide the suit?

The Observations of the Court

1. With respect to Issue 1, the Honourable Bombay High Court observed that Plaintiff had entered into a transaction dated 15.01.2002 with Defendant Number 1 for sale of Security Number 1 valued at Rs.4,00,00,000/- and was delivered to Defendant Number 1 on 28.01.2002. Defendant Number 1 paid the difference amount of Rs.65,98,466.66/- to Plaintiff but failed to deliver Security Number 2 to Plaintiff as agreed.

2. With respect to Issue 2, the Honourable Bombay High Court observed that Plaintiff had entered into a transaction dated 28.02.2002 with Defendant Numbers 1 and 3 for sale of Security Number 3 valued at Rs.5,50,00,000/- and was delivered to Defendant Number 1 on 07.03.2002. Though Defendant Number 3 paid the difference amount of Rs.60,76,097.48/- through thirteen demand drafts, Defendant Numbers 1 and 3 failed to deliver Security Number 4 to the plaintiff as agreed.

3. With respect to Issue 3, the Honourable Bombay High Court critically analyzed that the transactions dated 15.01.2002 and 28.02.2002 was in the nature of sale and purchase of securities and not exchange of securities.

4. With respect to Issue 4, the Honourable Bombay High Court contemplated that Plaintiff is entitled to the return of Security Number 1 valued at Rs. 4,00,00,000/- from Defendant Number 1 as well as the return of Security Number 3 valued at Rs.4,00,00,000/- from Defendant Number 3 and to the extent of Rs.1,50,00,000/- from Defendant Number 7. Consequently, the Plaintiff is entitled to receive the value equivalent to the said securities including those that were re-invested pursuant to orders passed.

5. With respect to Issue 5, the Honourable Bombay High Court noted that Defendant Number 7 has failed to prove that it had a banker’s lien over the Maharashtra Krishna Valley Development Corporation Bonds worth Rs. 1,50,00,000/- that were furnished by the Defendant Number 2 by way of security for the cash credit facility advanced to him and also opined that it was free to pursue its remedies against the Defendant Number 2 .

6. With respect to Issue 6, the Honourable Bombay High Court considered that the suit is not bad for non-joinder of necessary parties as the necessary parties had been joined as Defendants.

7. With respect to Issue 7, the Honourable Bombay High Court witnessed that the Notice under Section 164 of the Maharashtra Co-operative Societies Act, 1960 was not liable to be issued to Defendant Number 7 as the Plaintiff pursued its own legal right re-claimed the Maharashtra Krishna Valley Development Corporation Bonds standing in its name and therefore, placed its reliance on the case Gajanan Eknath Sonankar v. Shegon Shri Agrasen Co-operative Credit Society Ltd. And Anr., 2015 (1) Mh L J 579.

8. With respect to Issue 8, the Honourable Bombay High Court observed that the Trial Court was not justified in relying upon various Circulars and Notifications without giving due notice to the parties that it intended to rely upon the same.

9. With respect to Issue 9, the Honourable Bombay High Court observed that the dismissal of the suit with costs in instant case was not justified as the plaintiff was entitled to the reliefs.

10. With respect to Issue 10, the Honourable Bombay High Court observed that the adjudication of the suit by the Court of learned 4th Joint Civil Judge, Senior Division, Amravati was legal and proper as he was the one who conducted the trial as well as decided the case.

The Decision held by the Court

1. The Honourable Bombay High Court allowed the Appeal and the orders passed by the Trial court was set aside.

2. The Honourable Bombay High Court held that Plaintiff is entitled to receive Security Number 1 valued at Rs.4,00,00,000/- from Defendant Number 1 with interest at 12% per annum. It further held that Plaintiff is entitled to receive Security Number 3 valued at Rs.4,00,00,000/- with interest at 12% per annum from the Defendant Number 3 as well as the Bonds worth Rs.1,50,00,000/- seized from Defendant Number 7 which was subsequently reinvested.

3. The Honourable Bombay High Court opined that the plaintiff is also entitled to receive the amount of interest earned by the Bonds till their maturity as well as interest earned after their re-investment.

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