CITIBANK N.A. Vs. HITEN P. DALAL & ORS.

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 3580 of 2005, Judgment Date: Aug 21, 2015

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3580 OF 2005

Citibank N.A. …..Appellant

Versus

Hiten P. Dalal & Ors. …..Respondents

WITH

CIVIL APPEAL NO. 3584 OF 2005

J U D G M E N T

SHIVA KIRTI SINGH, J.

The simple grievance of the appellant is that by impugned judgment and
order dated 12.04.2005 passed by a Hon’ble Judge presiding over the Special
Court (Trial of Offences Relating to Transactions in Securities) at Bombay
has erred in determining an excessive amount payable by the appellant
Citibank to the respondent applicant – Canbank Financial Services Limited
(hereinafter referred to as ‘Canfina’) by way of restitution.
There is no dispute that on account of reversal of a money decree in favour
of Citibank in Suit No. 1 of 1995 filed by it against Canfina, by a common
order dated 7.7.2004 passed by this Court in Civil Appeal nos. 7426, 9063
and 9138 of 1996, the Citibank is required to restore back the monetary
benefits it received under the decree against Canfina. The operative part
of the said decree dated 22/23/26.04.1996 in Suit no. 1 of 1995 is as
follows:
“121. xxxx Accordingly, the defendants are directed to deliver to
the plaintiffs, 9% IRFC Bonds of the face value of Rs. 50 crore within a
period of 16 weeks xxx”

“122. the question then arises as to the interest the defendants
must therefore pay to the plaintiffs, the interest @ 9% on these Bonds for
the period starting from 15th July, 1991 till they deliver the Bonds. If
the Defendants do not deliver the Bonds but choose to return the monies
they must still pay interest. However, in my view the Plaintiffs would
still be entitled to interest at 9% only. This, however, will be from the
date the consideration amount was received by the Defendants till the date
of repayment. xxx"

Since the decree gave an option to Canfina, it opted to deliver to the
Citibank the 9% IRFC Bonds of the face value of Rs. 50 crores on 13.8.1996.
It also paid the awarded interest at the rate of 9%. The aggregate interest
amounted to Rs.22,34,58,904/- calculated for the period 15.7.1991 to
30.6.1996. There is no controversy so far as the restitution of interest
amount is concerned but there is a strong disagreement between the parties
as to how the market value of the bonds be calculated for the purpose of
effective and satisfactory restitution. Admittedly the bonds delivered to
Citibank on 13.8.1996, were being traded in the market and there is no
serious dispute that on that date the market value of a bond was Rs. 81/-
and the aggregate value of the bonds on that basis would be Rs 40.50
crores.
According to learned senior counsel, Mr. Kapil Sibal the Canfina suffered
only the loss of Rs 40.50 crores and Rs. 22.34 crores and on decree being
set aside it is entitled only to such loss along with 9% interest, by way
of restitution.
There would have been no difficulty in working out the loss of Canfina if
it had opted to pay the money value of the bonds instead of delivering the
bonds. It is also not in dispute that after receiving the bonds, Citibank
in its wisdom disposed of the bonds in the market during March/April 1997
when the prevailing average market rate was Rs. 85/- per bond although its
face value was Rs. 100/- redeemable on 15.7.2001. The bonds delivered to
City Bank carried with them coupons for half yearly interest at the rate of
9% on the face value of the bonds and for one set of coupons for half
yearly interest, Rs. 2.25 crores in aggregate was also received by Citibank
in January 1997. Thereafter between April/March 1997 the Citibank sold the
bonds at average price of Rs. 85/- receiving in aggregate Rs. 42.56 crores.

By the very nature, the bonds, on 15.7.2001 at their face value would be
worth Rs. 50 crores. This along with half yearly interest through coupons
redeemed after April 1997 has presumably gone to third parties who might
have purchased the bonds in the market.
The appellant Citibank in compliance of the judgment of this Court dated
7.7.2004 had to offer restitution of “total amount paid” by Canfina to
Citibank (principal and interest) along with interest at the rate of 9% per
annum from the date of payment. But in case the full amount was not paid by
1.9.2004, the liability would increase to interest at the rate of 12% per
annum till repayment by Citibank. Obviously, the total amount of principal
paid by Canfina to Citibank through delivery of Bonds on 13.8.1996 had to
be worked out in a reasonable and just manner. This problem has arisen
because Canfina had opted to deliver the bonds and not the money which it
had received for those bonds. Admittedly the total consideration paid by
Citibank to Canfina for the 9% IRFC bonds of face value of Rs. 50 crores
was Rs. 49 crores at market value of Rs. 98/- on 30.12.1991 along with an
interest component of approximately Rs. 2 crores, bringing the total
consideration to Rs. 51,07,12,328.77.
The issue is, when the bonds are no longer in currency and not available
for return by way of total amount paid by Canfina to the Citibank, then for
restitution what method of calculation shall serve the purpose best in
arriving at the total amount paid to Citibank “by way of principal” which
it must return to Canfina.
After the Supreme Court judgment on 12.7.2004 Canfina by a letter to
Citibank demanded Rs. 135,18,28,053/- by way of restitution. The Citibank
made its own calculations and through its advocate’s letter, on 19.7.2004
tendered the aggregate amount of 107,75,40,141/- to Canfina. When Canfina
declined to accept this offer the Citibank filed a praecipe in the Special
Court for depositing the aforesaid sum in Court with notice to Canfina. The
Special Court vide its order dated 20.7.2004 recorded the statement of
Canfina that it will accept the amount without prejudice to their rights
and contentions in view of their stand that the amount is not correct and
Canfina is entitled to claim more. Thereafter Citibank unsuccessfully
attempted to get a recording in this Court that it had complied with the
order of restitution. This Court on 26.10.2004 disposed of Citibank’s I.A.
no. 5 of 2004 in Civil Appeal No. 9063 of 1996 and granted liberty to
Citibank to approach the Special Court. On 24.12.2004 Citibank filed
miscellaneous application no. 24 of 2005 in the Special Court for recording
satisfaction of this Court’s judgment. On 2.3.2005 Canfina also filed
miscellaneous application no. 118 of 2005 claiming that it was entitled to
further amount of approximately Rs. 51.83 crores after deducting Rs.
107.76 crores approximately already paid by Citibank. By the impugned order
dated 12.4.2005 the Special Court disposed of both the above applications
and allowed an additional sum of Rs. 30,13,55,175/-. This amount has been
paid by the appellant without prejudice to its rights sought through the
present appeals arising out of common judgment dismissing appellant’s
miscellaneous application and allowing that preferred by Canfina.
Learned senior counsel for the appellant, Mr. Kapil Sibal as well as
learned senior counsel for the respondent Canfina have relied upon various
judgments, many of them being common, to highlight the true meaning of
restitution in the light of Section 144 of the Code of Civil Procedure. It
goes without saying that they highlighted different words and sentences to
support their respective case. Simply put, the contention on behalf of the
Citibank is that for restitution the correct amount is required to be
calculated on the basis of “market value” of the bonds when they were
delivered by Canfina to the Citibank i.e, at the rate of Rs.81/-,
aggregating Rs. 40.50 crores. This amount and also approximately Rs. 22.34
crores paid by Canfina as interest at the rate of 9% per annum for the
period 15.7.1991 to 30.6.1996 is the “total amount paid” by Canfina to
Citibank as principal and interest and therefore the sum of these two
amounts alone is required to be repaid by way of restitution along with
interest at the rate of 9% per annum because the Citibank chose to comply
with the order of Supreme Court for the purpose of restitution before
1.9.2004 by tendering the aggregate sum of Rs. 107,75,40,141/- to Canfina.
However, in order to appear more fair and accommodative, Citibank has
placed three more set of calculations/charts. The first chart claims that
in the light of various judgments on the issue of restitution, it may be
proper to calculate the market value of the bonds on the basis of NSE
letter showing the rate as Rs. 82.80 per bond. So calculated, the total
amount along with interest payable to Canfina has been shown as
Rs.109,31,28,500/-. The second chart shows the total amount payable as
Rs.111,30,97,602/-. This has been calculated by accepting the market value
of the bonds on the basis of average sale price during March/April 1997 as
Rs.85.129 per bond aggregating Rs. 42,56,45,000/-. From the figures in the
two charts noted above, it is evident that while seeking to justify its
earlier calculation of approximately Rs. 107 crores as the total value of
restitution, as an alternative submission Citibank appears to have
suggested two other figures by way of possible restitution which are Rs.
109 crores and Rs. 111.30 crores approximately. But the last chart (third
in this series) filed on behalf of Citibank acknowledges a further receipt
of Rs. 2.25 crores as coupon interest for half yearly coupons dated
1.1.1997 on which interest has been calculated till 20.7.2004. That brings
the aggregate total amount payable to Canfina as Rs. 115,08,98,835/-. Since
Citibank paid the sum of Rs. 30,13,55,175/- on April 25, 2005 in terms of
the impugned order hence as per the last chart of calculations noted above,
it has claimed that on adjustment, it is entitled to refund by Canfina as
on April 25, 2005 of a total sum of Rs. 22,14,36,756/- along with interest
either at the rate of 12% per annum or as may be awarded by this Court on
the aforesaid amount from 25th April 2005 till the date of actual refund.
On the other hand the stand of the Canfina is that after the Supreme Court
judgment setting aside the decree against Canfina on 7.7.2004 the only safe
method for calculating the value of the bonds delivered to Citibank on
13.8.1996 would be to accept and act upon its face value, i.e, Rs. 100/-
per bond on the maturity date, 15.7.2001 and add to it the half yearly
interest received after 13.8.1996 and then calculate interest on and from
15.7.2001 at the rate indicated in the order of this Court dated 7.7.2004.
The aforesaid claim, according to Canfina has rightly been accepted by the
Special Court in the impugned order so that status quo ante is restored by
way of restitution by ignoring the intervening circumstance of sale of the
bonds by Citibank to third parties in March/April 1997.
In reply learned senior counsel for the appellant has criticized the
impugned order by highlighting that in paragraph 7 the Special Court has
erred in going beyond the three items delivered by Canfina to Citibank i.e,
the bonds, the amount of interest and interest coupons by indulging in
speculation that “had the Canfina not been required to deliver the bonds to
Citibank, the bonds would have remained with it so also the amount of
interest till the date of redemption.” Same criticism was also made against
another observation/opinion of the Special Court in the same paragraph
recorded in the following words:
“…………. in so far as the restitution is concerned the fact that the bonds
were sold by Citibank during the pendency of the appeal is not relevant.”

The contention of appellant is that the Special Court came to an unjust and
erroneous conclusion that Canfina would be entitled to the redemption value
of the bonds i.e, Rs. 50 Crores, mainly on account of aforesaid erroneous
presumption and opinion.
Learned senior counsel, Mr. Kapil Sibal has advanced a contention that as
per settled principles of law governing restitution, the respondent Canfina
can be given back only what it lost on the date it satisfied the decree
which was ultimately reversed and not what it could have gained on certain
presumptions made in the impugned order. In support of this contention he
placed reliance upon two judgments of Madras High Court in the case of
Lakshmi Amma vs. Thazhathitathil Krishna Kurup (AIR 1931 Madras 81) and in
the case of S. Chokalingam Asari vs. N.S. Krishna Iyer and Ors. (AIR 1964
Madras 404). He also placed reliance on Calcutta High Court judgment in the
case of Surendra Lal Chowdhury and Ors. vs. Sultan Ahmed and Ors. (AIR 1935
Calcutta 206) and the following four Supreme Court judgments:

1. Lal Bhagwant Singh vs. Rai Sahib Lala Sri Kishen Das,
1953 SCR 559=AIR 1953 SC 136
2. Kartar Singh & Ors. vs. State of Punjab, (1995) 4 SCC 101
3. Kerala State Electricity Board and Anr. vs. M.R.F.
Limited, (1996) 1 SCC 597
4. South Eastern Coalfields Ltd. vs. State of M.P. & Ors.,
AIR 2003 SC 4482

In the case of Lakshmi Amma (Supra), the Madras High Court noticed certain
privy council judgments and also the contention that Section 144 of the CPC
providing for restitution would apply only to cases where in execution of a
decree passed by one court a benefit is received by the decree holder and
thereafter that decree is reversed or set aside subsequently by a competent
court then in such cases the court should place the parties in the position
which they would have occupied but for such a decree which was varied or
set aside. However, on the facts of that case the claim of the plaintiff
appellant for restitution was turned down. In the other Madras High Court
judgment in the case of S. Chokalingam (Supra) the right of a bona fide
purchaser for value was upheld in paragraph 30 of the judgment and
thereafter in paragraph 31 reliance was placed upon judgment of this Court
in the case of Bhagwant Singh (Supra) by extracting the following passage:
“ The doctrine of restitution is that on the reversal of a judgment
the law raises an obligation on the party to the record, who received the
benefit of the erroneous judgment to make restitution to the other party
for what he had lost and it is the duty of the Court to enforce that
obligation unless it is shown that restitution would be clearly contrary to
the interests of justice.”

In the case of Surendra Lal (Supra), the Calcutta High Court explained that
it is the duty of the Court under Section 144 CPC to place the parties in
the earlier position after a decree executed in favour of one be varied or
reversed. But it was clarified that “in assessing what a party may have
lost or of what he may have been deprived during his dispossession the law
takes into account not what he could have made but what his opponent did in
fact make or could with reasonable diligence have made.” This conclusion
was predicated on the reasoning that in vast majority of cases it would be
hypothetical, remote and uncertain to find out what the party subjected to
dispossession could have made if it was left in possession.
The relevant part of judgment in the case of Bhagwant Singh (Supra) has
been extracted in the Madras High Court judgment and already noticed
earlier. This Court in the penultimate paragraph has reiterated the
salutary and well established principle of restitution that on the reversal
of a judgment the party who received the benefit of an erroneous judgment
is obliged to make restitution to the other party for what he had lost. The
Court is also duty bound to enforce such obligation unless it finds that
restitution would be clearly contrary to the real justice of the case.
Similar words have been used by this Court in the case of Kartar Singh
(Supra) by holding that the party which had received the benefit of the
erroneous decree is required to make the restitution to other party for
what he had lost.
In the case of Kerala State Electricity Board (Supra) also the view taken
by this Court was similar. But it was further clarified that the Court has
a duty that in the matter of restitution justice be done as per facts of
the case. In granting relief of restitution the Court “should not be
oblivious of any unmerited hardship to be suffered by the party against
whom action by way of restitution is taken.” This Court favoured a
pragmatic view and grant of relief in a manner as may be reasonable, fair
and practicable without causing unmerited hardships to either of the
parties. In the case of South Eastern Coalfields Limited (Supra), this
Court re-emphasized that restitution is for meeting the ends of justice and
depends upon the peculiar facts and circumstances of the case. This Court
further clarified in para 27 that as held by Privy Council in the case of
Jai Berham vs. Kedar Nath Marwari, AIR 1922 PC 269, Section 144 CPC is
rather a statutory recognition of an already existing rule of justice,
equity and fair play and therefore even apart from Section 144 the Court
has inherent jurisdiction to order restitution so as to do complete justice
between the parties. This Court approved the view of the Privy Council that
the Court has to act rightly and fairly according to the circumstances,
towards all parties involved.
Learned senior counsel for the respondent Canfina, as was indicated earlier
also placed reliance upon the aforesaid judgments in support of his plea
that restitution requires that the parties be placed in the position which
they could have occupied but for the wrong order or decree which is
ultimately varied or reversed. He amplified his submissions by highlighting
certain other paragraphs in the earlier noted judgments that suggest that
the status quo as obtaining on the date of wrongful deprivation should be
restored and only if same is not possible due to intervening circumstances
like the sale of the property, price and mesne profits may have to be
ordered. According to him the actual sale is of no consequence for
calculating what the wronged party had actually lost. However, according to
him also, for proper restitution the Court must rely upon verifiable value
of the goods lost due to sale etc. and not indulge in speculation or
hypothetical presumptions. He placed reliance also upon judgment of this
Court in the case of Indian Council for Enviro-Legal Action vs. Union of
India & Ors. (2011) 8 SCC 161. This judgment was in the context of
constitutional provisions such as Article 21 and compensation for loss
suffered by citizenry due to pollution. Advancing the principle that the
polluter pays for the sufferings, the Court propounded the principle of
disgorgement of gains of wrongdoers and that the Court could even think of
imposing compound interest in place of simple interest provided by statute.
Exercise of such inherent powers was contemplated only in interest of
principles of justice and equity as warranted by the facts in cases of
pollution causing sufferings to citizenry. All these principles were
justified on the basis of power to order for restitution under inherent
powers of the Court. But this Court did not over-rule any of the earlier
judgments of this Court laying down classic principles of restitution under
Section 144 of the CPC on which the appellant has placed reliance and which
require a just and fair approach so that no unmerited hardship is caused to
either of the parties.
In the ultimate analysis we find that the law on restitution under Section
144 of the CPC is quite well settled. It vests expansive power in the Court
but such power has to be exercised to ensure equity, fairness and justice
for both the parties. It also flows from more or less common stand of
parties on the principle of law that for ascertaining the value of the
property which is no longer available for restitution on account of sale
etc., the Court should adopt a realistic and verifiable approach instead of
resorting to hypothetical and presumptive value. It is also one of the
established propositions that in the context of restitution the Court
should keep under consideration not only the loss suffered by the party
entitled to restitution but also the gain, if any, made by other party who
is obliged to make restitution. No unmerited injustice should be caused to
any of the parties.
Keeping the aforesaid principles in view it has to be seen whether the
order under appeal suffers from any illegality requiring interference and
correction by this Court. In our considered view in the course of finding
out the value of the bonds which are no longer available for restitution,
the learned Special Court committed a clear error of law in ignoring a
relevant fact that the bonds in question were a tradable commodity on the
stock market and its value could be easily ascertained either on the date
when the bonds were handed over to the Citibank or at the time when the
Citibank sold the bonds to third parties. Such relevant facts should not
have been lost sight of and no presumption should have been made that
Canfina would have retained the bonds with it till the maturity period.
There are sufficient materials available to lend credence to the view that
in all eventuality Canfina would have sold the bonds because it was in such
business and also because earlier when it had the option, it chose to hand
over the bonds to Citibank instead of preferring the other option of paying
its monetary value. Sale of the bonds by Citibank to third parties at a
verifiable rate not being under dispute, it is evidently unjust to saddle
Citibank with liability to repay the possible gains made by the third party
or subsequent purchasers of the bonds. For these reasons we come to the
conclusion that the amount determined by the Special Court for restitution
and payment by Citibank is unjust and is a result of error in not keeping
under view the relevant facts as well as in applying the settled legal
propositions for the purpose of compensating Canfina by way of restitution.
In view of above the impugned order is set aside. In order to bring the
dispute to a just, logical and early conclusion, instead of remanding the
matter to the Special Court we accept the last chart submitted on behalf of
appellant to be correct calculation of the amount payable by way of
restitution by Citibank to Canfina. As noted earlier as per such chart the
total amount payable to Canfina on 20.7.2004 is Rs. 115,08,98,835/- and
after adjusting the further amount paid by Citibank to Canfina under
protest on 25.4.2005 the Citibank is entitled to a refund by Canfina as on
25.4.2005 to an amount of Rs. 22,14,36,756/-. In line with earlier orders,
we allow interest on this amount at the rate of 9% per annum from 25.4.2005
till the date of actual refund. Canfina should make a refund of aforesaid
due amount along with interest awarded by us within four weeks. Both the
appeals are allowed to the extent indicated above. In the facts of the
case there shall be no order as to costs.

…………………………………….J.
[VIKRAMAJIT SEN]

……………………………………..J.
[SHIVA KIRTI SINGH]
New Delhi.
August 21, 2015.
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