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Calcutta High Court · body

2009 DIGILAW 560 (CAL)

Beda Nand Choudhury v. UNION OF INDIA

2009-07-30

SANJIB BANERJEE

body2009
Judgment :- (1) Two of the respondents to a writ petition disposed of by an order dated July 5, 1999 have applied for recalling the order on the ground that they had been misled into conceding to the arrangement recorded in the order. The National Securities Clearing Corporation Limited and the National Stock Exchange of India. Limited (NSE) claim that a fraudulent petitioner had deceived the applicants into believing that a particular state of affairs existed when subsequent disclosure by the petitioner in terms of the order showed otherwise. (2) WPNo.2098 of 1998 was brought with a grievance that the NSE had played spoilsport in the petitioner exercising all rights in respect of 400 equity shares of and in ITC Limited to which the petitioner was beneficially entitled. The petitioner claimed that the petitioner had caused certain shares in the relevant company to be purchased through the respondent No. 5 broker company which was run and controlled by the respondent No. 6 individual. The petition spoke of a purchase of 400 shares in the company from the NSE with which the broker was registered, against full payment of the market price thereof which had been tendered by the broker to the second respondent clearing house of the NSE. The petition proceeded to narrate that upon such 400 shares being sent to the company for registration of the transfer, 100 shares were returned on account of the transferors signature not tallying, These 100 shares, according to the petition, were returned to the broker for replacement and were lodged with the applicants herein in October, 1997. The petitioner said that a further 300 shares in the same company were purchased by him through the broker and returned by the company on account of bad delivery, whereupon the petitioner sought replacement thereof from the NSE through the registered broker. The grievance in the petition was that such 400 shares in ITC Limited that had been duly deposited by the broker for replacement or rectification had not been returned after correction nor replaced by the applicants herein. (3) The applicants herein used an affidavit in the proceedings pleading therein that the writ petition was not maintainable against them as they did not answer to the description of State or other authority within the meaning of Article 12 of the Constitution. (3) The applicants herein used an affidavit in the proceedings pleading therein that the writ petition was not maintainable against them as they did not answer to the description of State or other authority within the meaning of Article 12 of the Constitution. On merits, the applicants affidavit said that the petitioner was a rank stranger to the applicants as there was no privity of contract with the petitioner. It was incidentally mentioned (at paragraph 3 of the affidavit) that the respondent No. 5 had defaulted in settlement of dues and in maintaining the security deposit consequent whereupon, as at the close of financial year 1998-99, there was an amount of Rs. 1,88,44,221.01 p due to the applicants from the broker in addition to unrectified bad delivery of shares of value of Rs. 55,74,654/- (4) In dealing with petitioners claim, the affidavit averred the following at paragraphs 10 and 18 thereof : "10. With reference to paragraph-6 of the petition, I state that the respondent Nos. 2 and 3 are not aware of the transaction that the petitioner had with the respondent Nos. 5 and 6. However, the petitioner vide its letter dated 31st December, 1997 wrote to the respondent No, 2 that he had submitted some shares with the respondent No, 5 for bad delivery and/or on the ground of objection of the company. The respondent No. 3 vide its letter dated 7th April, 1998 wrote to the petitioner asking him to send the copies of Member-Constituent Agreement and contract notes Issued by the respondent No. 5. The petitioner in turn vide its letter dated 13th October, 1998 informed that he is in receipt of copies of BDCIA (Form for lodge of bad delivery of shares where company objects to register transfer) and Form-6B (Form for bad delivery for other reason). However, the delivery number on the Form-6B was not legible. The petitioner was asked by the respondent No. 3 to intimate the delivery number in respect of 300 shares of ITC Ltd. being subject matter of the instant petition. The petitioner, however, did not inform the same to these respondents." (Emphasis supplied) "18. However, the delivery number on the Form-6B was not legible. The petitioner was asked by the respondent No. 3 to intimate the delivery number in respect of 300 shares of ITC Ltd. being subject matter of the instant petition. The petitioner, however, did not inform the same to these respondents." (Emphasis supplied) "18. .....Since the delivery number of Form-6B was not legible the petitioner was asked to intimate the delivery number but the petitioner failed to intimate the same." (5) It is evident that the principal ground canvassed in the affidavit to deal with the petitioners grievance was that despite request, the petitioner had not furnished the delivery number in respect of the transactions. The categorical assertion at both paragraph 10 and paragraph 18 of the applicants affidavit was that the delivery number in the relevant document was not legible. The implication was that in the absence of the delivery number relating to the transactions, the faulty shares could not be located. The affidavit stand merely parroted the assertion made by the investor grievances cell of the NSE in its letter of October 13, 1998. The relevant paragraph from such letter recorded as follows : "However, we are in receipt of the copies of BDC-1A, and Form 6-B enclosed with your above said letter, but we regret to state that the Delivery No. is not legible on the photocopy of Form 6-B, without which we are unable to locate the shares. You are therefore requested to either forward us fresh copies of Form 6-B or let up know the delivery No. in respect of 300 shares of ITC Ltd. which were lodged as Bad Delivery." (6) Upon the petition being taken up for hearing on July 5, 1999 the following order was made : "The Court : This application was disposed of according to the suggestions of the parties. The petitioner shall by a covering letter furnish the Agreement, a legible copy of Form-6B and copies of Contract Notes in respect to the shares which the petitioner had purchased to the respondent No. 3 its Member-Constituent. Upon receipt of such documents and papers the respondent No. 3 shall within three weeks therefrom complete the shares in every respect and make them over to the petitioner. There shall be no order as to costs. Upon receipt of such documents and papers the respondent No. 3 shall within three weeks therefrom complete the shares in every respect and make them over to the petitioner. There shall be no order as to costs. Parties shall act on a xerox of the signed copy of this dictated order on the usual undertaking." (7) The applicants claim that in terms of the order of July 5, 1999 the petitioner forwarded the requisite documents. The applicants say that upon receiving such documents and verifying the records it appeared "that the said transaction was made by the respondent No. 5 not on account of the writ petitioners but on its own account." The applicants refer to a direction of the Securities and Exchange Board of India issued on November 19, 1996 that advised members of stock exchanges to prefix "CLI" for client account orders and "PRO" for orders of member brokers for self transactions. Such identification codes had to be recorded at the time of entering the order on the trading system. The applicants say that the 300 bad delivery shares and the 100 company objected to shares had been purchased by the fifth respondent broker by marking the transactions as "PRO". The applicants contend that the relevant transactions were, in fact, entered into by the broker for itself and not in its capacity as a broker acting on the instructions of any client. (8) The applicants say that the receiving member code in the relevant forms bear the number 06639 which is the unique identity number of the fifth respondent broker and it was evident, in such circumstances, that a defaulting broker registered with NSE had devised a scheme by using the petitioner as a front for fraudulently obtaining the rectification or return of certain shares from the NSE with knowledge that if it had applied itself the NSE would not rectify or return the shares since the stock exchange had a claim well in excess of Rs. 2.35 crore against such broker. The applicants urge that the conduct of the petitioner in lending his name to the transactions and to the proceedings was calculated to obtain an undue benefit for a declared defaulter and otherwise fitted to deceive. 2.35 crore against such broker. The applicants urge that the conduct of the petitioner in lending his name to the transactions and to the proceedings was calculated to obtain an undue benefit for a declared defaulter and otherwise fitted to deceive. The applicants cry foul and say that fraud has been perpetrated on the Court and on them by concealing the relevant data in the illegible copies of the documents that had been furnished prior to the order dated July 5, 1999 being made. The applicants insist that since fraud unravels everything, the conduct of the petitioner would warrant the Order dated July, 1999 being recalled and strict measures being taken against the petitioner. (9) The applicants say that at the very least the consent or concession recorded in the order was given under a bona fide mistake that the transactions were entered into by the petitioner and the subsequent discovery, following the deposit of legible copies of the documents as required by the order, of the heinous conduct of the petitioner -or, more appropriately, through the instrumentality of the name-lender petitioner -would unbind the applicants from the consequence of the order. They say that a mistake of such nature is good ground for rescinding an agreement or avoiding the obligations under a concluded contract and the same principles would apply to a consent order. They suggest that an order passed at the suggestion of parties should not be elevated to the exalted status of a consent order because the order was doubtless the Courts, albeit at the behest of the parties. The applicants say that the subsequent discovery of the matters actively concealed by the petitioner would demonstrate that the petitioner and the applicants were not ad idem at the time that the order was made. The applicants argue that consent fraudulently obtained and made even the basis of an order may be undone in such circumstances. (10) The applicants refer to a judgment reported at (1981)1 WLR 505 [Thomas Bates and Son Ltd. v. Wyndhams (Lingerie) Ltd.]. The Court of Appeal considered an agreement between the plaintiff landlords and the defendant tenants for a new lease pursuant to a renewal clause in the existing lease which provided that the rent would be agreed between the parties or in default of agreement, fixed by an arbitrator. The Court of Appeal considered an agreement between the plaintiff landlords and the defendant tenants for a new lease pursuant to a renewal clause in the existing lease which provided that the rent would be agreed between the parties or in default of agreement, fixed by an arbitrator. The parties agreed on the rent for the first five years of the new tenure and contracted that the quantum of rent would be reviewed at the end of the fifth and the tenth years of the term. The new indenture of lease which had been drawn up by the landlords made no provision as the quantum of rent in default of agreement between the parties. At the time of execution of the deed, an officer of the tenants noticed that the review clause was altered but did not bring it to the attention of the landlords. At the end of the fifth year the parties were unable to agree on the revised rent and the landlords brought an action for the rectification of the lease. The claim was decreed upon it being declared that the rent in review periods should be the market rent and requiring the lease to be rectified to provide for the revised rents, in default of agreement, to be determined by an arbitrator. In affirming the decree in regard to the rectification but deleting the declaration relating to payment at market rate, the Court of Appeal held that where a party to a document was aware that the document did not give effect to the common intention of the parties due to a mistake on the part of the other party without informing the other party and where the mistake was detrimental to the interest of the other party, the first party was precluded from resisting the rectification. (11) A judgment reported at (1897)2 Ch D 534 (Wilding v. Sanderson) is next placed by the applicants in their attempt to dislodge the order made at the suggestion of the parties to the writ petition. (11) A judgment reported at (1897)2 Ch D 534 (Wilding v. Sanderson) is next placed by the applicants in their attempt to dislodge the order made at the suggestion of the parties to the writ petition. The principle enunciated by the Court a Appeal in such case was that an order made in an action by consent and based upon, and intended to carry out, an agreement arrived at between the parties, can be set aside on any ground on which an agreement in the terms of the order could be set aside ; mistake being one of the available grounds. The relevant passage appears at pages 543-544 of the report : "A consent judgment or order is meant to be the formal result and expression of an agreement already arrived at between the parties to proceedings embodied in an order of the Court. The fact of its being so expressed puts the parties in a different position from the position of those who have simply entered into an ordinary agreement. It is, of course, enforceable while it stands, and a party affected by it cannot, if he conceives he is entitled to relief from its operation, simply wait until it is sought to be enforced against him, and then raise by way of defence the matters in respect of which he desires to be relieved. He must, when once it has been completed, obey it unless and until he can get it set aside in proceedings duly constituted for the purpose. In my opinion there was no agreement in the present case between the parties prior to the judgment being passed and entered, their minds never having been ad idem in respect of the subject-matter with which they were dealing. It also appears to me that the divergence of their minds was in respect of an essential or fundamental point. If there was no agreement there was no consent upon which the judgment could be founded. And just as a consent order may be set aside upon any of the grounds upon which ah agreement can be set aside, so it appears to me to follow that such an order may be set aside if it can be clearly proved that there was no agreement, and, consequently, no true consent to the order made. And just as a consent order may be set aside upon any of the grounds upon which ah agreement can be set aside, so it appears to me to follow that such an order may be set aside if it can be clearly proved that there was no agreement, and, consequently, no true consent to the order made. (12) In the next judgment cited by the applicants, reported at AIR 1921 Cal 229 (Khitipati Roy v. Dharani Mohan Mookerjee), a consent order was recorded by a learned Judge in chambers for the issue of a commission to examine witnesses on behalf of the defendant. On the following day the plaintiff mentioned for revision of the order on the ground that plaintiffs Attorney had not had before him full and sufficient facts bearing on the matter at the time of consenting to the order. Such prayer was rejected. Shortly thereafter, a formal application was made for striking out certain words from the consent order as to the place of the examination of one of the witnesses. The plaintiff had sought such deletion upon his perception of the manifold difficulties of access to and accommodation at the place specified in the consent order. The learned Judge agreed with the plaintiffs perception and was satisfied that plaintiffs attorney had consented to the order under a misapprehension. It is the following passage from the judgment that the applicants here rely on : "......That an order by consent can be revised or varied in circumstances showing that the consent had been given under misapprehension or mistake is well settled and it is unnecessary for me to deal at length with the authorities." (13) Closer to the present times, the applicants have brought a judgment reported at (1994)1 SCC 1 (S. P. Chengalvaraya Naidu v. Jagannath and Ors) where the famous words of an English Chief Justice was quoted in the opening sentence, "fraud avoids all judicial acts, ecclesiastical or temporal." The predecessor- in -interest of the respondent plaintiffs filed an application for final decree for partition and mesne profits. The appellant defendants contended that the preliminary decree had been obtained by fraud. The Trial Judge dismissed the application for grant of final decree. The plaintiffs successfully carried an appeal to the High Court where the principle of "finality of litigation" weighed in the plaintiffs favour. The appellant defendants contended that the preliminary decree had been obtained by fraud. The Trial Judge dismissed the application for grant of final decree. The plaintiffs successfully carried an appeal to the High Court where the principle of "finality of litigation" weighed in the plaintiffs favour. The High Court held that the conduct of the plaintiff, a benamdar, did not amount to collateral or extrinsic fraud as it was upto the defendants to plead and establish at the earlier stage that the plaintiff had no title to the suit properties ; that the plaintiff did not prevent the defendants by any contrivance or trick or deceit from raising the appropriate plea and adducing the requisite evidence; and, that the parties were fighting at arms length and it was the duty of each to traverse and question the allegations made by the other and discredit the claim or defence. In the appeal by certificate of the High Court, its judgment was criticised by the Supreme Court in the following words that the applicants here draw inspiration from : "5. The High Court, in our view, fell into patent error. The short question before the High Court was whether in the facts and circumstances of this case, Jagannath obtained the preliminary decree by playing fraud on the Court. The High Court, however, went haywire and made observations which are wholly perverse. We do not agree with the High Court that "there is no legal duty cast upon the plaintiff to come to Court with a true case and prove it by true evidence". The principle of "finality of litigation" cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. The Courts of law are meant for imparting justice between the parties. One who comes to the Court, must come with clean hands. We are constrained to say that more obtain than not, process of the Court is being abused. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the Court-process a convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that a person, whos case is based on falsehood, has no right to approach the Court. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the Court-process a convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that a person, whos case is based on falsehood, has no right to approach the Court. He can be summarily thrown out at any stage of the litigation." (14) The applicants refer to a judgment reported at 99 Cal WN 897 (Chittaranjan Das v. Durgapore Project Limited and Ors) where the suppression of a document which had a material bearing on the matter was seen as conduct amounting to fraud. Paragraphs 64 and 65 of the report are relevant : "64. Suppression of a material document which affects the condition of service of the petitioner, would amount to fraud in such matters. Even the principles of natural justice are not required to be complied with in such a situation. "65. It is now well known that a fraud vitiates all solemn acts. Thus, even if the date of birth of the petitioner had been recorded in the service returns on the basis of the certificate produced by the petitioner, the same is not sacrosanct nor the respondent company would be bound thereby." (15) The petitioner suggests that the dispute between the broker and the stock exchange arose subsequent to the conclusion of the subject transactions and well after the petitioner had complained to NSE that the shares to which he was beneficially entitled had not been rectified or replaced by the stock exchange. The petitioner emphasises on the assertion in the letter of October 13, 1998 that the delivery number relating to one transaction was illegible in the document supplied and contends that the implication thereof was that the relevant shares could not be identified in the absence of the appropriate delivery number. (16) The petitioner relies on a judgment reported at (2001)6 SCC 688 (Salkia Businessmens Association v. Howrah Municipal Corporation) where it was held that the disposal of a petition in pursuance of a compromise memorandum made the terms of the memorandum binding even though such terms may not have been reproduced verbatim in the order of the High Court. It was observed that the terms of a compromise memorandum upon which a petition under Article 226 of the Constitution is disposed of are not a mere matter of contract between the parties. It was observed that the terms of a compromise memorandum upon which a petition under Article 226 of the Constitution is disposed of are not a mere matter of contract between the parties. In effect, the Supreme Court held that a writ petition disposed of on compromise could not be reopened for the purpose of going behind the order. Paragraph 8 of the report is apposite : "8. We have carefully considered the submissions of the learned senior Counsel on either side. The learned Single Judge as well as the Division Bench of the High Court have not only oversimplified the matter but seem to have gone on an grand, carried away by some need to balance hypothetical public interest, when the real and only question to be considered was as to whether the respondent Authorities are bound by the orders passed by the Court on the basis of the compromise memorandum and whether the proposed move on their part did not constitute fragrant violation of the orders of the Court - very much binding on both the parties. The High Court failed to do justice to its own orders. If Courts are not to honour and implement their own orders, and encourage party litigants - be they public authorities, to invent methods of their own to short-circuit and give a go-by to the obligations and liabilities incurred by them under orders of the Court - the rule of law will certainly become casualty in the process - a costly consequence to be zealously averted by all and at any rate by the highest Courts in the States in the country. It does not, in our view, require any extraordinary exercise to hold that the memorandum and terms of the compromise in this case became part of the orders of the High Court itself when the earlier writ petition was finally disposed of on 13.2.1991 in the terms noticed supra, notwithstanding that there was no verbatim reproduction of the same in the order. The orders passed in this regard admit of no doubt or give any scope for controversy. While so, it is beyond ones comprehension as to how it could have been viewed as a matter of mere contract between the parties and under that pretext absolve itself of the responsibility to enforce it, except by doing violence to the terms thereof in letter and spirit. While so, it is beyond ones comprehension as to how it could have been viewed as a matter of mere contract between the parties and under that pretext absolve itself of the responsibility to enforce it, except by doing violence to the terms thereof in letter and spirit. As long as the earlier order dated 13.2.1991 stood, it was not permissible to go behind the same to ascertain the substance of it or nature of compliance when the manner, mode and place of compliance had already been stipulated with meticulous are and detail in the order itself. The said decision was also not made to depend upon any contingencies beyond the control of parties in the earlier proceedings." (17) The present application, taken out less than a month after the order of July 5, 1999 was passed, has, unfortunately, remained pending for over ten years. Upon this application being received an order was made on July 30, 1999, the material portion whereof reads as follows : "In the meantime, operation of the order dated July 5, 1999 shall remain stayed. The petitioner, however, shall make over on or before Monday (2.8.99) within 4 p.m. the shares to the Registrar, Original Side of this Court, and the Registrar, Original Side upon verification shall keep the same in a sealed cover. The petitioner shall make the shares to the Registrar, Original Side upon notice to the Advocates for the respondent and Advocates for the respondent shall be at liberty to be present at the time of such making over of the shares to the Registrar, Original Side of this Court. The Registrar, Original Side of this Court shall make the sealed cover along with the shares available to this Court, as and when so directed." (18) Whether the order was at the suggestion of the parties or it did not expressly refer to any consent, the hair-splitting exercise is an attempt at making, a distinction without a difference. If the Court accepts a suggestion from a party before it to make an order, the concession or consent embodied in the suggestion becomes binding on such party ; subject, however, to the legally accepted exceptions. Fraud is, indeed, an exception. But equally, fraud is a question of fact. A fact has to be asserted and established. Fraud is no magic wand that may be waved for all legal hurdles to vanish. Fraud is, indeed, an exception. But equally, fraud is a question of fact. A fact has to be asserted and established. Fraud is no magic wand that may be waved for all legal hurdles to vanish. It is no mantra that is the key to all legal locks that upon its chanting inaccessible juridical vistas open up to be trammelled upon. An act or conduct, even if wrongful or misleading, does not amount to fraud just because the one who alleges that it does is partial to the word. (19) The petitioner wrote a letter to the clearing-house of the NSE on December 31, 1997 that 400 shares in the company to which he was beneficially entitled remained blocked on account of bad delivery or company objection. There was no denial by the applicants herein to the receipt of such letter in the applicants affidavit to the writ petition. The letter of December 31, 1997 was referred to at paragraph 13 of the writ petition. The applicants affidavit in response to the petition dealt with the contents of paragraph 12 of the petition at paragraph 15 of the affidavit and the contents of paragraph 14 of the petition at paragraph 16 of the affidavit, but did not deal with the averments contained in paragraph 13 of the petition. Copies of such letter had been marked to both the NSE and to the Securities and Exchange Board of India. The petitioner wrote another letter on March 10, 1998 reminding the applicants of the petitioners earlier complaint. The applicants affidavit dealing with the writ petition claimed at paragraph 16 that the investor grievances cell of NSE replied on April 7, 1998 asking for a copy of the member constituent agreement and the "contract note issued by the respondent No. 5 .... for verification." A grievance was thereafter made in the applicants earlier affidavit that the applicants could not discern the delivery number relating to the transactions. (20) The applicants, on their showing, were aware of the identity of the broker involved and the only reservation expressed was with regard to the delivery number. The delivery number could only enable the stock exchange or its clearing-house to locate and identify the shares in question. It was precisely this that was asserted in the letter of October 13, 1998 issued by the stock exchange to the petitioner. The delivery number could only enable the stock exchange or its clearing-house to locate and identify the shares in question. It was precisely this that was asserted in the letter of October 13, 1998 issued by the stock exchange to the petitioner. There was, thus, no difficulty on the applicants part to otherwise follow the nature of the transactions. It is also significant that though their earlier affidavit referred to the alleged default committed by the broker (at paragraph 21 of their affidavit), the applicants did not harbour any doubt that the broker may have set up the petitioner to institute the proceedings. All the other details of the transactions were available with the applicants, or could have been available if they had been diligent. If, despite noticing that the transactions had been carried out through the alleged defaulting broker, the applicants did not question the bona fides of the transactions at the earlier stage and voluntarily conceded or consented to the order of July 5, 1999 being made, the subsequent receipt of the same documents that had been furnished earlier cannot be cited to undo the consequence of the consent order. The delivery numbers that the applicants could not guage earlier and could only discern after legible copies of the documents had been furnished pursuant to the order, could not have directed the applicants to the alleged complicity between the petitioner and the broker. The other material already available prior to the order would have shown the applicants as to who was the real owner of the shares. (21) Again, it was open to the applicants to allow the defaulting broker the benefit of the transactions with full knowledge that it was the broker who was the beneficiary thereof. It was a decision within the applicants domain for they could have refrained from exercising any lien in respect of the shares notwithstanding the brokers default. If they had consented to release a part of the brokers security it may have caused them prejudice but would not have been illegal. And this is where the present case stands on a different footing than the S. P. Chengalvaraya Naidu case (supra). In the Supreme Court matter, the plaintiff had no legal right to the property and relief only on the preliminary decree in support of his claim thereto. And this is where the present case stands on a different footing than the S. P. Chengalvaraya Naidu case (supra). In the Supreme Court matter, the plaintiff had no legal right to the property and relief only on the preliminary decree in support of his claim thereto. An illegality was sought to be overcome on the ground of the finality of the preliminary decree. (22) There is no illegality involved in the present case. The defaulting broker may have itself applied and the applicants in their wisdom may have allowed the transactions. There was no compulsion on the applicants to concede or consent to the order ; at least no submission has been made to such effect. If the applicants volunteered to acquiesce in a state of affairs which was within their authority to do, their shouting fraud would not permit the undoing of the consent order. (23) Though the word fraud has been mentioned a few times in the application, no particulars of fraud have been furnished. The application refers to the codes "CLI" and "PRO" without mentioning as to whether it was possible for the applicants to ascertain the true beneficial owner of the shares on the basis of the documents already available with them prior to the order dated July 5, 1999. The consent or concession on the part of the applicants that is evident from the order appears to be a voluntary relinquishment of a known right and merely because the implication of the order dawned on them after they had consented thereto is not good ground for the order being recalled despite their repeated incantation of fraud. (24) GA No. 3151 of 1999 is dismissed, but without any order as to costs. The shares bring held by the Registrar, Original Side, should be forthwith made over to the petitioner.