Facts

The National Housing Bank drew a cheque on  January 3,  1992, for  an  amount  of Rs.95.39 crores approximately on the Reserve Bank of India in favour of the State Bank of Saurashtra, a subsidiary of the appellant, which later merged in the appellant. Towards  the end of April, 1992, the National Housing Bank found that   it did not possess any bank receipts or supporting documents or any securities in respect of such transaction and addressed letters to the State Bank of Saurashtra requesting it to make delivery of bank receipts/securities or for return of the amount. The State Bank of Saurashtra denied the existence of any “outstanding transaction”. The National Housing Bank filed a suit before the Special Court established under the Special Court (Trial of Offences Relating to Transactions in securities) Act, 1992 against (i) the State Bank of Saurashtra, (ii) Harshad S Mehta (HM), (iii) two employees of Plaintiff Bank and (iv) the Custodian appointed under section 3(1) of the 1992 Act for recovery of an amount of Rs.95.39 crores with interest alleging conspiracy, collusion and fraud between the defendants in the   suit thereby causing loss to the National Housing Bank. The Special Court passed   a decree in favour of the National Housing Bank and against the State Bank of Saurashtra only and not against other Defendants. The State Bank of Saurashtra challenged that part of the decree which was against it and the National Housing Bank challenged that part of the decree of the Special Court directing it to deliver certain amounts to the Custodian. According to the Special Court, the Plaintiff had not led any oral evidence to prove it’s case but it decreed the suit in it’s favour      on the basis of findings in thereport of the Jankiraman Committee.

Issue

Whether the Suit was rightly decreed on the basis of credible evidence on record?

View

The entire scandal and the present litigation revolves around the second Defendant (since deceased)-one Harshad S. Mehta. The scandal exposes the shortcomings and loopholes in the administration of banking sector of this country, more particularly, the State-owned/controlled banks.

The Supreme Court in this case came down heavily upon the Plaintiff Bank and  the Defendant No 1 Bank which are instrumentalitiesof State for not leading proper evidence before the Special court. The Court held that “The entire effort of the Plaintiff in the suit, according to us, is to suppress all the relevant information, we are convinced that such a process is resorted to in order to shield the delinquent officers of the bank (whoever they are) who are responsible for such dealings by taking shelter under the legal principles such as unjust enrichment and moneys  had (??) and received etc. to recover the money paid by the Plaintiff to the 1st Defendant through the cheque in question. Whether the payment in question was made in discharge of any existing legal obligation such as the one set up by the Defendants 1 and 2 or not could be known only when the full facts are disclosed.   But disclosure of full facts might (though we are almost certain) lead to trouble to somebody or the other in the management of the Plaintiff-Bank or perhaps both the Banks andGod knows who else.”

The Court also came down heavily on the Government for not settling these matters. The Court held “The professed purpose of the Special Courts Act-the back drop of the scandal that shook the nation-and the manner in which the litigation  was conducted coupled with the absolute indifference of the Government to get at   the truth only demonstrates the duplicity with which Governments canact.”

Held

Though the 1992 Act declares that the Special Court is not bound by the Code       of Civil procedure, 1908, it does not relieve the Special Court from the obligation  to follow the Indian Evidence Act, 1872. The findings of even a statutory commission appointed under the Commissions of Inquiry Act, 1952, are not enforceable proprio vigore and the statements made before such commission are expressly made inadmissible in any subsequent proceedings civil or criminal. Therefore, courts are not bound by the conclusions and findings rendered by such commissions. The statements made before such commission cannot be used as evidence before any civil or criminal court. It should logically follow that even the conclusions based on such statements can also not be used as evidence in any court. The Special Court had based its conclusions on Janakiraman Committee Report and the correspondence between the various parties (whose details are not even specified in the judgment). The course adopted by the learned Judge of the Special Court of looking into the correspondence between the parties, which even according to the learned Judge had not been proved is not permissible in law. Further,  the learned Judge extensively relied upon the second interim report of    the Jankiraman Committee on the ground that the same was tendered by the 1st Defendant. It is well settled by a long line of judicial authority that the findings     of even a statutory Commission appointed under the Commissions of Inquiry  Act, 1952 are not enforceable proprio vigore as held in Ram Krishna Dalmia v. Justice S. R. Tendolkar AIR 1958 SC 538 and the statements made before such

Commission are expressly made inadmissible in any subsequent proceedings civil or criminal. In our view,  the courts, civil or criminal, are not bound by the report or findings of the Commission of Inquiry as they have to arrive at their own decision on the evidence placed before them in accordance with law. Accordingly the Suit was dismissed as the Plaintiff had not led any evidence. (CA Nos. 2155, 2294 and 3647 of 1999 dt. 31-7-2013)

Editorial: The ratio of the decision settles the cloud over the issue whether the statement made before the inquiry commission can be used in the proceedings before the court as an admission of guilt or as an evidence to establish the fact;    the court held that such statements made before the inquiry commission could    not be used against the persons making such statements in the courtproceedings.

“The moment there is suspicion about a person’s motives, everything he does becomes tainted.”

– Mahatma Gandhi