MUMBAI, Feb 4: The Special Court handling cases related to the securities scam of 1992 has ruled in favour of National Housing Bank (NHB) in the legal battle between NHB and ANZ Grindlays Bank.The court set aside the Rs 912-crore arbitration award given by a three-member arbitration panel in favour of ANZ. It may be recalled that on March 29, 1997, the three-member arbitration panel headed by former SC Chief Justice MH Kania ruled in favour of ANZ in a securities scam related case involving the crediting of cheques in Harshad Mehta's account.
The arbitration panel held that ANZ Grindlays was not guilty of wrongly crediting account payee cheques worth over Rs 506 crore in Mehta's account. These cheques were drawn on the Reserve Bank of India in early April, 1992, by the NHB.
As per the decision of the arbitration panel, NHB last year transferred Rs 912 crore, which included interest at the rate of 14 per cent. Out of three members on the panel, Justice Chandurkar and Justice Kenia ruled in favour of ANZGrindlays while Justice MN Dutt was against repayment to ANZ.
Earlier, ANZ was forced by the Reserve Bank of India (RBI) to pay Rs 506 crore to NHB, a subsidiary of the RBI, for wrongfully crediting the account payee cheques by NHB in the account of Mehta, who was a Bombay Stock Exchange broker. The arbitration panel agreed with the argument of ANZ that depositing the amount in the current account of Mehta was an accepted market practice which prevailed before the securities scam broke out in 1992.
In a similar case, RBI had asked State Bank of India (SBI) to pay Rs 707 crore to NHB. Here again, NHB had claimed that SBI had wrongfully credited money to the account of the broker. However, SBI did not go for arbitration like ANZ Grindlays.
When the arbitration panel verdict went against the NHB, the RBI came to the rescue of NHB and provided the latter with a loan. Even though ANZ received Rs 912 crore, the bank has not transferred the amount to the profit and loss account to avoid a scenario wherein anyfuture judgment can go against the bank.
Delivering the verdict, the Justice S N Variyava said ``under the circumstances, it would have to be held that there are errors of law apparent on the face of the award. They are all based on applying wrong principles of law. The award in my view must be set aside''.
ANZ has, however, said that it would take the matter to Supreme Court (SC). The foreign bank's lawyers -- Dave & Girish & Co -- have, however, said they have not yet received a brief from their clients about the next course of action. ANZ Grindlay CEO (India) Mehli Mistri refused to comment. The bank would have to move SC within 30 days from the day of announcement of the verdict (February 4, 1998).
NHB chairman PP Vora said: ``We are now entitled to get back the Rs 912 crore we paid to ANZ Grindlays Bank. The money that would have to be returned to us would now amount to Rs 1,058 crore after factoring in 10 months interest at 18 per cent. We are examining the pros and cons.'' However, ANZ's lawyershave said the money will have to be repaid to NHB only in the event of SC turning down the appeal of the foreign bank. ``This was made very clear while the verdict was delivered at the Special Court,'' said a senior lawyer at the firm.
The arbitration proceedings, which were spread over more than 300 meetings in five years, saw more than Rs 15 crore being spent in litigation.
The NHB challenged the arbitration award on the ground that if accepted, it would have grave implications on the Negotiable Instruments Act, 1881. Besides, the prevailing payment system in the country -- through account payee cheque -- would be severely affected.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
