The Telegraph
Since 1st March, 1999
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Citi wins scam case indemnity

New Delhi, Oct. 9: The Supreme Court today ordered Standard Chartered Bank to pay Citibank Rs 79 crore, an amount that includes an interest of 12 per cent, in a 1991 securities-scam case over disputed gilt deals.

The division bench of Justice R.C. Lahoti and Justice Ashok Bhan said the rate would go up to 15 per cent if the cash is not coughed up by November 30. Citibank will, in turn, return money to Canara Bank, from which it had taken funds to buy government securities.

The rate of 12 per cent will be levied from the day StanChart received the money from Citibank, which had to stump up the sum after a Mumbai special court trying scam-related cases ruled against it. The Supreme Court also asked StanChart to pay Rs 40 lakh to cover some of the legal expenses incurred by Citibank.

Citibank purchased government bonds worth Rs 44.85 crore from Canbank Mutual Fund, and sold to StanChart gilts with a face value of Rs 42 crore and Rs 8 crore. Two banker’s receipts were issued against the deal.

StanChart returned the bankers receipts and accepted Canbank Mutual’s instruments worth Rs 44.58 crore and that of Citibank’s with a face value of Rs 5.41 crore. Nine months later, StanChart slapped a legal notice on Citibank, saying it had not received anything.

The special court ruled that Citibank should pay since the instruments backing the transactions were not honoured. The bank did so, with a 20 per cent interest rate, but filed an appeal against the decree in the apex court.

Setting aside the special court order, the Supreme Court said the documents issued by Canbank Mutual were dishonoured. “Why should a creditor like StanChart ask for and accept an instrument that was, on the face of it, unrealisable. The bank owes the court an explanation on why it had asked for, or accepted, such an instrument,” the judges said in their ruling today.

The jury said the special court had “erred” in holding Citibank responsible for dishonoured instruments of Canbank Mutual, and in “wrongly directing” Citibank to make good the losses on this count.

The bench, therefore, held that Citibank is entitled to restitution of the total amount paid by it to StanChart, and to receive Rs 40 lakh in legal costs. The size of the payment is one of the highest in the court’s history. Citibank would also receive the money the special court had asked it to pay when it lost the case to StanChart.

“As a result of this, the bench said Canbank Mutual would be entitled to restitution of the amount paid by it to the Citibank (principal and interest) along with 12 per cent interest from the date of payment, provided it was paid on or before December 5 and in default to pay 15 per cent till the money is paid.

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