Appeal No. 336 of 2006 and M.A. No. 1072 of 2009. Case: Amit Jhaveri and Anr. Vs Bank of Baroda and Anr.. Mumbai DRAT DRAT (Mumbai Debt Recovery Appellate Tribunals)

Case NumberAppeal No. 336 of 2006 and M.A. No. 1072 of 2009
Party NameAmit Jhaveri and Anr. Vs Bank of Baroda and Anr.
CounselFor Appellant: Mr. D.P. Desai, Advocate and For Respondents: Mr. G.R. Kinkhabwala and Mr. Sanjay Dubey, i/b M.V. Kini & Co., Advocate for the Respondent No. 1-Bank and Mr. H.T. Ameta, Advocate for the Respondent No. 2 (Income Tax Department)
JudgesAllah Raham, J. (Chairperson)
IssueIncome Tax Act, 1961 - Section 226(3); Negotiable Instruments Act, 1881 - Section 80; Recovery Of Debts Due To Banks And Financial Institutions Act, 1993 - Sections 18, 2(g)
Judgement DateJanuary 12, 2010
CourtMumbai DRAT DRAT (Mumbai Debt Recovery Appellate Tribunals)

Judgment:

Allah Raham, J. (Chairperson)

  1. This appeal challenges the order dated 27th March, 2006 passed in Original Application No. 946/2000 (High Court Suit No. 194/1997) by learned Presiding Officer, DRT-II Mumbai, whereby respondent No. 1- bank's O.A. was allowed for Rs. 8,09,58,000/- with interest @ 18% p.a. from 27th December, 1993, till full realization. The Appeal also challenges the order dated 3rd October, 2006, passed by P.O., DRT - II, Mumbai in Review Application No. 14/2006, whereby the operative portion of the order passed in O.A. No. 946/2006 was reviewed and the amount of recovery was modified to Rs. 11,20,14,000/- with interest @ 18% p.a. from 27th December, 1993, till full realization. It appears that the defendant No. 1 (appellant No. 1 herein) operated Current Account No. 30124 with the respondent No. 1's Walkeshwars Branch, Mumbai. The defendant No. 2 (appellant No. 2 herein) the sole proprietorship firm of appellant No. 1 operated Overdraft Account No. 50070 with the same branch of the respondent No. 1. The modus operandi of the appellants is stated in para 4 of the plaint which is reproduced hereunder:

  2. The defendant No. 1 used to procure deposits from various third parties for investment as short term deposits with the plaintiffs Walkeshwar Branch. The defendant No. 1 representing himself as sole Proprietor of defendant No. 2 herein would request the plaintiffs to prepay the amount of deposit without depositing duly discharged receipts with the plaintiffs and would have the amounts of deposits receipts credited to his account. The defendant No. 1 was given unauthorized Overdraft or Credit balance to his account, which the defendant No. 1 would clear by ostensible premature repayment of some Time Deposits belonging to some Third Parties. The original Time Deposit receipts would remain with, the parties whose funds were placed in the accounts of defendant Nos. 1 and 2. On the due dates of Time Deposit receipts, the defendant No. 1 would provide funds in his current accounts and to the debit of such current account. Bankers' cheques were issued to the original beneficiaries of the deposits. The defendant No. 1 would take the original bankers' cheques and bring back the original deposit receipt duly discharged by the concerned beneficiary.

  3. It is stated that on 10th November 1993, the respondent No. 1 bank issued several Demand Drafts aggregating to Rs. 277,75 lacs by debiting General Ledger (GL)/Short Term Deposit Receipts (SDR)/Fixed Deposit Receipts (FDR). The said Demand Drafts were issued without any funds provided by appellant No. 1 and no application was made by the appellant No. 1 for issue of such demand drafts. On 24th November, 1993, the respondent No. 1 bank debited Rs. 292 lacs and Rs. 234.25 lacs to the debit of the General Ledger, SDR/FDR and credited the said sum of Rs. 8.30 Crores, which was placed in Short Term Deposit with the respondent No. 1 bank. This included a deposit of Rs. 5 Crores from the Parle Group and also deposits of Rs. 3.30 Crores, from various other Third Parties. It further appears that on 6th December, 1993, when all the deposit receipts of Rs. 8.30 Crores were prematurely retired for payment, the amounts were credited to the Overdraft Account No. 50070 of appellant No. 2 and on credit of the said amount the debit entries dated 10th November, 1993, and 24th November, 1993, in appellant No. 1's Account were reversed by debiting Overdraft Account No. 50070 of appellant No. 2. Insofar as the receipts of Rs. 3.30 Crores are concerned, all the said receipts were discharged and surrendered to the respondent No. 1 bank on their respective due dates and no amount was paid to the said Third parties. Between 4th December 1993 and 27th December, 1993 COS/Individuals of the Parle Group deposited with the respondent No. 1 bank an aggregate sum of Rs. 15.20 Crores. The due dates of the respective Short Term Deposits were between 4th June, 1994 and 27th June, 1994. The said deposits were prematurely retired and the proceeds credited to the said Overdraft Account No. 50070 of appellant No. 2 between 6th December, 1993 and 27th December 1993. Though the original receipts were not surrendered to the respondent No. 1 bank in effect and in substance the funds of Parle Group brought in as short Terms Deposits were immediately used by defendants Nos. 1 and 2 through Account No. 50070 with the respondent No. 1 bank. These were the funds made available out of premature payment of short term deposit receipts.

  4. These irregularities were noticed by the respondent No. 1 bank sometimes before 14th February, 1994, Preliminary investigation was made by the officers of the respondent No. 1 bank. Then a complaint was lodged with CBI, Mumbai by the respondent No. 1 bank. The appellant No. 1 was arrested by the CBI. He made application in the Court of Additional Chief Metropolitan Magistrate Esplanade, Mumbai, for selling certain shares seized by CBI. The application was made with a view to give sale proceeds to the respondent No. 1- bank. The learned CMM permitted to sell certain shares with a view to discharge civil liability towards the respondent No. 1 bank. The said order was upheld with certain modifications by the learned Sessions Court at Mumbai and with certain modification by the Hon'ble High Court of Judicature at Bombay.

  5. The respondent No. 1 bank called upon the appellants to make payments but they failed to do so, hence the O.A. was filed.

  6. The defendants (appellants herein) filed their written statement and admitted to have operated two accounts with the respondent No. 1 bank's Walkeshwar Branch, Mumbai. They have also admitted to have mobilized funds of respondent No. 1 bank. They have, however, challenged the jurisdiction of the Tribunal. It has been stated by the appellants to have secured deposits to enable the depositors to earn interest in the...

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