40. The first defendant Bank denied the existence of any “outstanding transaction” between the two and its liability to issue either a BR or deliver any securities or refund of the amount as claimed by the plaintiff Bank. Click here to remove this judgment from your profile. The second reason was to boost their profits, which were quite low at that time. On the basis of information gathered it was thought that the said transaction was outstanding and that the first defendant had not delivered the related securities or any BR for the same. The first defendant further stated that its action of crediting the proceeds of the said cheque to the account of the second defendant was justified by a certain market/banking practice. Expert committee on economic capital framework will have to give its report within 90 days from its first meeting. This impact on the stock market was huge considering that the scam amounted to only 4025 crores in comparison to a trillion or 1 lakh crores. Here's a detailed FAQ that takes an in-depth look at the Securities Scam 1992. 2. 60. 40. CBI registered several cases against the above group of brokers for those cases. The Janakiraman Committee estimated the size of the scam at Rs 4024 crore. 48. But buyers had the option to roll over their position to the next settlement cycle, if they could find somebody to finance it. 2294 and 3647 of 1999, decided on July 31, 2013. Corporate Governance Report Company's Philosophy on Corporate Governance Mindtree Limited (herein after referred to as 'Mindtree' or 'the Company'),looks upon good Corporate Governance practices as a key driver of sustainable corporate growth and long-term stakeholder value creation. The corporates often use the funds to buy shares of group companies. CRR, as the term implies, required banks to park a certain portion of their deposits with the RBI at zero interest. However, it is the specific defence of Defendants 1 and 2 that there was another transaction on 3-1-1992 whereunder the plaintiff agreed to sell IRFC bonds of face value Rs 100 crores to Canfina and received the price of the same of Rs 95.43 crores (approx.) On the other hand, the Special Court recorded20 with respect to the payment of Rs 55 crores (approx.) 16. But when done through the PMS route, they were technically investing the funds on behalf of their customers. They merely tendered certain documents but did not bother to prove them in spite of a caution by the Special Court. There were two violations here. as the same was paid to Standard Chartered Bank towards the price of IRFC bonds of face value Rs 80 crores which eventually came to be delivered to Canfina by Standard Chartered Bank on behalf of the plaintiff Bank. In the background of the above discussed pleadings and evidence, we are of the opinion the suit is required to be dismissed on the ground that there is no evidence led by the plaintiff to establish its case. 2 of 1995. The said receipt was subsequently returned discharged by Canfina on receipt of the abovementioned IRFC bonds. This was to do with banks’ trading in debt securities. So when Bank A bought securities from Bank B, the cheque would be made out in the name of Bank B. A bank holding a BR and yet to receive delivery of the underlying securities would trade in those securities with a third bank, and issue another BR. In fact, it appears from the judgment under appeal that even in this case the Special Court had directed such a settlement without any success. Shah committee : To head panel on road safety A conclusion which in our opinion is wrong and the consequences of suppression of material facts require a further scrutiny at a later stage of this judgment. 2 of 1995. Four gadgets you should invest in for good health. This Post is in Continuation with our previous post List of Various Committees & Their Focus Area Here is the list of various Committees and their main Focus Areas . When the RBI raised CRR, some banks would find themselves short of cash. For example, if it took Rs 500 crore to build a new cement or steel plant of a certain capacity, then an existing company with that capacity should be valued at Rs 500 crore. The funds raised through PMS schemes would be loaned to brokers, and even corporates, in the guise of ready forward transactions. 42. In its first report, the committee quantified the scam amount at Rs 4,300 crore involving units of the Unit Trust of India (UTI). Why were banks willing to accommodate brokers? Under Section 9-A(1) of the Act10, the Special Court has all jurisdiction to adjudicate any matter or claim arising out of a transaction in securities entered into during the period specified in the said section in which a notified person is involved in whatever capacity. In violation of rules, PSUs started taking positions in the securities market through the portfolio management services (PMS) schemes run by banks. What was the event that finally blew the lid off the scam? The financier would charge an interest, which was higher than the rates in the bond markets, as well as the deposit rates offered by banks. The only other witness examined in this case before Special Court is one Hiten B. Mehta who claimed that he was working at the relevant point of time (1992) with the second defendant as a Chief dealer. 582-83, para 57) 57. The rules clearly said that ready forward transactions could be done only between banks and that too for government securities. India's economic growth likely to pick up soon, says Morgan... We should remove exemptions and deductions in a phased manner,... Yearender 2020: Delhi riots to Kozhikode plane crash, 10... View: Virtual Fitness, the next normal in 2021. 12. 2155 of 1999 aggrieved by the decree directing the payment to the plaintiff. BJP MPs head most panels, outnumber opposition in committees 16 Sep, 2019, 07.36 AM IST to Standard Chartered Bank by the plaintiff: 59. In effect, BRs were being issued with BRs as the underlying, instead of securities. In exercise of such jurisdiction, the Special Court partially accepted the “counterclaim” made by the second defendant. The Janakiraman Committee estimated the size of the scam at Rs 4024 crore. Para 34 of the judgment inter alia reads: (SCC p. 204). 5. 49. Nifty 11,531.60-3.4. So brokers found it profitable to access funds from the banking system and use it for their stock market operations. The Special Court opined that the plaintiff had disclosed all necessary facts in the plaint and was not guilty of suppression of material facts. It is also worthwhile noticing that the second defendant does not dispute (either in his written statement or by way of any rejoinder to the written statement of the first defendant) the categorical stand taken by the first defendant that the cheque in issue was in fact delivered by the second defendant to the first defendant with a covering letter dated 3-1-1992 (the content of which has already been taken note of) the terms of which were acted upon by the first defendant. 2155 of 1999 to this Court. 15. They exploited it to the hilt. Get 1 point on providing a valid sentiment to this In the background of such a stand of the first defendant and the stand of the plaintiff in the unamended plaint that its record revealed that the cheque in question was issued “in respect of the sale by the first defendant to the plaintiff of 9% IRFC bonds”, the plaintiff owes a basic duty to the Court to explain in the plaint and prove by producing its records in evidence (i) as to how such a transaction came to be entered in its records, who was responsible for such entry, (ii) who took the decision to purchase the IRFC bonds from the first defendant, (iii) who signed the cheque in question and (iv) how the second defendant got custody of the cheque. Section 9- A(1)(b) of the Special Court Act, Civil Appeals No. The issue regarding suppression of material facts by the plaintiffs is common with reference to both the defendants. In view of the amendment in the plaint, the first defendant Bank once again raised a preliminary issue regarding the maintainability of the suit before the Special Court. 17. Apart from the question of propriety of the language employed in the said suggestion, the content of the letter indicates that both the plaintiff and the respondent Banks simply reiterated their respective stands before the Committee of Secretaries. The Janakiraman Committee notes that the plaintiff's banker's receipt to Canfina stands discharged without the plaintiffs having made any delivery whatsoever. This involved the actions of one major player by the name of Ketan Parekh. Subscribe to Moneycontrol Pro at ₹499 for the first year and get access to exclusive offers. Many PMS schemes promised handsome returns. 41.3 The said BR was returned discharged by Canfina to the plaintiff. We therefore, proceed on the basis that the Special Court is authorised by law to adjudicate the claim of the second defendant without being shackled by the procedural fetters imposed under the Code. Once the buyer got delivery of the securities, the BR would no longer be valid. Janakiraman Committee Report - not admissible = The Special Court Act though declares that the Court is not bound by the Code of Civil Procedure, it does not relieve the Special Court from the obligation to follow the Evidence Act. Coronavirus News Highlights: Punjab to lift night curfew from... Banks buying securities would not insist on delivery within the 90-day limit, and this led to BRs being valid indefinitely. 54. What was Harshad Mehta’s role in the Securities Scam? It is only on the instructions of the appropriate higher authorities, cheques such as the one in question, are prepared. Initially the plaintiff issued a BR in favour of Canfina without actually delivering the bonds though the plaintiff received the sale price of the bonds. The entire effort of the plaintiff in the suit, according to us, is to suppress all the relevant information and 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. On the other hand, the Special Court held: 24. Where securities were not readily available, they even issued their own BRs. Interact directly with CaseMine users looking for advocates in your area of specialization. Having handed over the funds to banks, the PSUs never bothered to check where their money was being invested. The committee identified several types of irregularities in securities transactions which were used to siphon off funds out of the banking system “ In many cases of PSU bonds, the actual issue of certificates was delayed for several years and the holders' evidence of ownership was only an 'allotment letter'. Hari Gautam Committee: To review the status of UGC: Hilton-Young Commission: Recommended setting up of RBI. 2155 of 1999 with Nos. As per the Janakiraman Committee Report, the scam was of the magnitude of Rs.4025 crores. Good Corporate Governance Practices enable a Company to attract high quality financial and human capital. Prant Address: 20/31 Janakiraman Colony Main Rd., A rumbakkam, Chennai 600106 Our Bank: Indian Bank, On the other hand, the first defendant Bank in its written statement took a categorical stand that the records of the Bank did not show “that the cheque in dispute was issued in respect of any alleged sale by the first defendant to the plaintiff of 9% IRFC bonds of face value of Rs 100 crores”, but went on to say that the said cheque was issued for the benefit of the second defendant Harshad S. Mehta, through whose employee, the cheque was delivered to the first defendant Bank. Prof. Pankaj Chandra Independent Director How did stockbrokers come into the picture? The said Mr Prabhu in his chief-examination categorically admitted that there was a security transaction dated 3-1-1992 between the plaintiff and Canfina.19 Interestingly, the plaintiff did not choose to cross-examine the said witness. Raghuram Rajan Committee on Financial Sector Reforms (hereafter cfsr) has placed its draft report on the Planning Commission web site for public debate. change. 2 of 1995 itself came to be disposed of on 24-2-19994. The CBI got into the act. The Janakiraman Committee is not even a statutory body authorised to collect evidence in the legal sense. 11. following the report of the janakiraman committee, the rbi on 20.6.1992 issued a revised circular applicable to banks and mutual funds whereby, inter alia, it was mandated that brs could be issued only in exceptional circumstances. In July 1991, as the misuse of BRs became rampant, RBI issued a circular to banks forbidding sale transactions unless they held the actual securities in their investment account. It appears that the relief sought in both the abovementioned suits is substantially the same i.e the recovery of an amount of Rs 95.39 crores with interest. The first defendant further took a stand that the second defendant discharged the obligation of the plaintiff to Canfina under the said BR by delivering the said IRFC bonds to Canfina11. That prevented Harshad from being able to sell a part of his holdings and repay SBI. 55. ADITYA KOHLI B03 IMPACT OF THE SCAM According to the Janakiraman Committee from ECONOMICS ECON-2012 at IIT Bombay BJP MPs head most panels, outnumber opposition in committees 16 Sep, 2019, 07.36 AM IST Why then did the RBI not take action against foreign banks? The Janakiraman Committee in March 1993 brought out the 4th Interim Report. The second defendant further took a categorical stand at Para 9 of the written statement; 34. An appeal both on questions of fact and law under the abovementioned provision is provided directly to this Court from any “judgment, decree, sentence or order” of a Special Court established under Section 5 of the abovementioned Act. It was a classic ‘you-scratch-my-back-I-scratch-yours’ arrangement between banks and brokers. Some foreign banks like Citibank were found to be short-selling government securities, which meant that it sold securities not owned, in violation of RBI rules. While the series has been praised for its largely accurate portrayal of the events that transpired -- down to a fleeting mention of the fiscal deficit in the Budget 1986 speech, as is shown when a character is watching it on TV -- there are only so many details that it can capture given the scope of the medium. Clearly, the money from the banking system was flooding the stock market and driving stock prices higher. 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