4,69,134 15 9.
2,00,000 and Rs.
18,60,000 was passed on to the Union Agencies through Chokhani that day.
1120 was opened.
Thereafter, the Chairman companyld exercise the powers of the General Manager companyferred under the byelaws or other resolutions of the Board.
The presence, of the inscribed stock was a guarantee that the securities were, in the Bank.
The office numbere, Exhibit P. 793, with respect to the purchase of these securities worth Rs.
He gave himself out as the sole proprietor and mentioned the business of the companypany in the form for opening account as merchants and companymission agents.
18,00,000 was to fall due on January 15, 1955.
On August 12, 1954, the statement of account with respect to the purchase of securities worth Rs.
5,00,000, was entered into by Chokhani.
5,00,000 was received.
On August 18,1954, Vishnu Prasad drew a sum of Rs.
75,000 was paid to Bennett Coleman Co. Ltd., of which Dalmia was a director and a sum of Rs.
Raghunath Rai referred the matter to Dalmia and, on his approval, sent a letter on November 19, 1954, to Chokhani, asking him to send the distinctive numbers of those securities.
7,40,088 5 9.
Chokhani used to purchase and sell securities on behalf of the companypany at Bombay.
3,00,000 respectively in the account of the Union Agencies, telegraphically from Delhi.
1646 with the United Bank of India Ltd., Bombay, in the name of M s. Bhagwati Trading Company, by you Vishnu Pershed accused with the assistance of you G. L. Chokhani, and Bajranglal Chokhani accused for the illegal purpose of divertin the funds of the said Insurance Company to the said Bharat Union Agencies, Ltd., by further agreeing that false entries showing that the defalcated funds were invested in Government Securities by the said Insurance Company be got made in the books of accounts of the said Insurance Company at Delhi, and by further agreeing to the making of false and fraudulent entries by you R. P. Gurha, J. S. Mittal, G. S. Lakhotia, V. G. Kannan, and others, relating to the diversion of funds of the Bharat Insurance Company to the Bharat Union Agencies Ltd., through M s. Bhagwati Trading Company, in the books of account of the said Bharat Union Agencies, Ltd., and its allied companycern known as Asia Udyog Ltd., and that the same acts were companymitted in pursuance of the said agreement and thereby you companymitted an offence punishable under section 120 B read with section 409 P.C., and within the companynizance of the Court of Sessions.
897 heretofore marked C .
No ostensible reason for their premature sale has been given.
The charge under s. 120 B read with s. 409, I.P.C., was against the appellants and five other persons and read I, Din Dayal Sharma, Magistrate I Class, Delhi, do hereby charge you, Dalmia Ram Krishna Dalmia s o etc.
Thus the balance of the funds of the Insurance Company with the Char tered Bank rose to an amount out of which the losses of about Rs.
In a few cases, securities so purchased and number received were received later when fresh genuine purchase of similar securities took place from the funds of the Bharat Union Agencies or Bhagwati Trading Company.
25,10,000 went to the Union Agencies, which mostly utilised the amount in payment of the losses suffered by it.
On August 16, 1954, Vishnu Prasad withdrew Rs.
464 C, 465 C and 463 D of 1959.
46,00,000 was duly obtained.
It is again significant to numbere that telephonic companymunication took place between Dalmias residence at New Delhi at, Chokhanis at Bombay, between September 4 and September 10, 1954.
37,75,000 were sent on January 6, 1955.
Demands for payment by the brokers were received on September 3, 1954, and subsequent days.
Between August 9 and August 19, 1954, Chokhani made payment to the brokers on account of the losses suffered by the Union Agencies.
Chokhani had authority to operate on the account of the Bharat Insurance Company at Bombay under the resolution of the Board of Directors dated January 31, 1951.
The 1955 securities would have matured much later.
The Union Agencies suffered further losses amounting to about Rs.
18,00,000 on behalf of Bhagwati Trading Company.
On September 6, 1954, Chokhani purchased 3 1959 61 securities of the face value of Rs.
Vishnu Prasad passed on Rs.
10,64,058 6 9.
Eleven stock certificates of the face value of Rs.
You were requested for companyversion of the above said G. P. Notes into Stock Certificate.
Shri Khanna carried out the audit and was number satisfied with respect to certain matters and that made him ask for the companynterfoils of the cheques and for the production of securities and for a satisfactory explanation of the securities number with the companypany at Delhi.
They were sold at Bombay on September 9, 1954.
Raghunath Rai deposes that he withdrew these from the Imperial Bank, Delhi, under the directions of Dalmia, and that he handed them over to Dalmia.
Thus, out of the total amount of Rs.
On receipt of the letter, Raghunath Rai companytacted Dalmia and, on being told that the securities were purchased under the latters instructions, made over the letter to the office where the usual entries where made and records were prepared, as had to be done in pursuance of the office routine.
No telephonic companymunication appears to have taken place between Delhi and Bombay, on receipt of the demand from the brokers on September 17, 1954, for the payment of the losses, presumably because necessary steps to be taken both in companynection with the fictitious purchase of securities, in order to pay money to Bhagwati Trading Company for being made over to the Union Agencies when funds were needed and also or providing funds in the Insurance Companys account with the Chartered Bank, Bombay, in case the balance was number sufficient to meet the losses, had already been adopted in the previous transactions, presumably, after companysultations between Dalmia and Chokhani.
The speculation business of Dalmia Cement and Paper Marketing Co,.
Face Value 2 1/2 1961 Rs.
B 540360 in favour of F. C. Podder, and by dishonestly utilising the said funds for meeting losses suffered by you in forward transactions in shares carried on in the name of Bharat Union Agencies, Ltd., and for other purposes number companynected with the affairs of the said Bharat Insurance Company and thereby companymitted an offence punishable under section 409, P. C., and within the companynizance of the Court of Sessions ,SECONDLY, that you R. Dalmia, in pursuance of the said companyspiracy between the 9th day of August 1955 and the 30th day of September 1955, at Delhi, Being the Agent in your capacity as Chairman of the Board of Directors and the Principal Officer of the Bharat Insurance Company, Ltd., and as such being entrusted with dominion over the funds of the said Bharat Insurance Company, companymitted criminal breach of trust of the funds of the Bharat Insurance Company Ltd., amounting to Rs.
P. C. that the signature,,, on Ex.
In Peoples Bank v. Harkishen Lal 1 it was ,stated Lala Harkishen Lal as Chairman is a trustee of all the moneys of the Bank.
made demand of Rs.
Dingle Foot, D. R. Prem, S. M. Sikri, G. H.Jauhari and A. N. Goyal, for the appellant in Cr.
10,00,000 in the month of September.
Bajranglal Chokhani s o etc.
29,75,000 was sent to Bombay on July 15, 1955 vide Exhibit P. 923.
On the same day, Dalmia and Chordia made an application for the opening of the account at Bombay with the result that Current Account No.
Stock certificate in respect of 3 Bombay Loan of 1955, of the face value of Rs.
1,94,00,000 I have number to request you to please arrange at your earliest to pay about Rs.
A cross contact of sale of similar securities by Bhagwati Trading Company to the brokers was also entered into.
Mehra deposed that in spite of the best search made by the Bank officials that letter companyld number be found and that Exhibit P. 897 was the companyy of the bye laws of the Bharat Insurance Company which he was producing in pursuance of the numberice issued by the Court.
The fact, however, Chokhani however was that Bhagwati Trading Company did number deliver the securities.
Bharat Union Agencies hereinafter referred to as the Union Agencies was a companypany which dealt in speculation in shares and, according to the prosecution was practically owned by Dalmia who held its shares either in his own names or in the names of persons or firms companynected with him.
Both Dalmia and Chokhani therefore had dominion over the funds of the Insurance Company.
B 540329 etc.,
This was done on September 19, 1955.
When the signed cheques were nearing depletion in one cheque book, Chokhani would send the other cheque book to Raghunath Rai for signing again a number of cheques.
In order to appreciate the points of law raised by Mr. Dingle Foot, we may number state the charges which were framed against the various appellants.
12 clause e of the Byelaws of the Company I am empowered to deal in Government Securities etc.
Raghunath Rai deposed about sending the bye laws Exhibits P. 897 to the Imperial Bank, New Delhi, with a companyering letter signed by Dalmia on September 4, 1954.
5,88,380 13 0 from August 23 to August 26,1954, on the account of the Union Agencies with the Chartered Bank, Bombay, in favour of the brokers on account of the losses suffered by that companypany.
35,00,000 on behalf of the Insurance, Company and also entered into a cross contract on behalf of the Union Agencies for the purchase of these securities from the same brokers.
7,00,000 in the account of the Union Agencies with the Bank of India, Rs.
4 To instruct the Bank to accept institutions with regard to withdrawal from Chokhani and Chordia.
56,00,000 were sent to Bombay on August 5, 1955.
2,00,000 and Rs.
At Delhi, where the head office was, the companypany had an account for the safe custody of securities with the Imperial Bank of India, New Delhi.
55,43,220 12 0, by wilfully suffering your companyaccused G.L. Chokhani to dishonestly misappropriate the said funds and dishonestly use or dispose of the said funds in violation of the directions of law and the implied companytract existing between you and the said Bharat Insurance Company prescribing the mode in which such trust was to be discharged, by withdrawing the said funds from current account No.
This amount was utilised in meeting the losses suffered by the Union Agencies to the extent of Rs.
Securities worth Rs.
The funds of the companypany, ostensibly spent on the purchase of securities, ultimately reached another companypany the Bharat Union Agencies.
He also entered into the usual cross contract with the brokers for the sale of those securities on behalf of the Union Agencies.
in 1947.
Chokhani however issued cheques in payment of the purchase price of the securities to Bhagwati Trading Company.
Thus, the amount of the cheques was paid out of the companypanys funds without any gain to it.
He companytacted Dalmia and learnt on September 16, 1955 from Dalmias relatives that there was a short fall securities.
Mehra, P. W. 15, Sub Accountant of the State Bank of India which took over the under taking of the Imperial Bank of India on July 1, 1955 at the time of his deposition, stated that the State Bank of India was the successor of the Imp erial Bank of India.
8,25,000 withdrawn from the Chartered Bank at Bombay were sold on January 11, 1955, and the proceeds were utilised in purchasing 2 3/4 1962 securities of the face value of Rs.
Appeals by special leave from the judgment and order dated January 2, 1961, of the Punjab High Court Circuit Bench at Delhi in Criminal Appeals Nos.
46,00,000, in two lots of Rs.
60,00,000 were purchased in July and August, 1955, respectively.
2 To authorise Chokhani to operate on the account of the Insurance Company.
G. L. Chokhani s o etc.
The salaries of personal and domestic employees of Dalmia were paid by Bharat Union Agencies and those payments were debited to the Salaries Account of the companypany.
p. 896 appear to be his.
27,00,000 arid with respect to 2 3 14 1960.
The transactions which have given rise to the present proceedings against the appellants companysisted of purchase of securities for this companypany and sale of the securities which the companypany held.
Bhagwati Trading Company did number deliver the securities but received the price from the Insurance Company.
The Union Agencies suffered further losses amounting to about Rs.
The transactions were companyducted through recognised brokers and ostensibly were numbermal transactions.
Thereafter Chokhani deposited Rs.
A. No.
Two calls were made on August 7, 1954, three on August 8, two on August 11 and one each on August 13 and August 14, respectively.
Securities.
On the next day, i.e., on July 16, 1955, stock certificates of 3 Bombay Loan of 1955 of the face value of Rs.
He issued cheques for Rs.
10,00,000 hold by the Insurance Company in its safe custody deposit with the Chartered Bank, Bombay, were sold on September 21, 1954, and Rs.
The companyy of the bye laws has been certified to be true by me under my signatures.
On the same day Chokhani was appointed Agent of the companypany at Bombay.
I am getting this letter also signed by Vishnuprasad on behalf of Bhagwati Trading Company although he had neither any knowledge of these transactions number had any companynection with these affairs.
Chokhani then issued cheques to telling Rs.
accused as under That you, R. Dalmia, G. L. Chokhani, Bajrang Lal Chokhani, Vishnu Pershad Bajranglal, R. P. Gurha, J. S. Mittal, S. N. Dudani, G. S. Lakhotia and V. G. Karinan, during the period between August 1954 and September 1955 at Delhi, Bombay and other places in India.
It is said that Chokhani instructed the brokers that he would have the securities from Bhagwati Trading, Company.
23,00,000.
This purchase, though genuine, was number a purchase in the ordinary companyrse of business, but was for the purpose of procuring the inscribed stock certificate to satisfy the auditors, as already discussed earlier, that similar securities purchased in December, 1954 existed.
The other securities remained at Bombay and were kept with the Chartered Bank.
Bhagwati Trading Company did companye into existence and ostensibly did business.
D. Thereafter, stock Certificates were sent thrice in July 1955.
17,50,000 were withdrawn from the Imperial Bank, Delhi, on September 4, 1954 vide Exhibit P. 1351.
These securities were then companyverted into inscribed stock.
On the same day, Vishnu Prasad, appellant, opened an account with the Bank of India, Bombay, in the name of Bhagwati Trading Company.
Only Gurha among them was companyvicted.
were parties to a criminal companyspiracy to do and cause to be done illegal acts viz.,
1120 of the said Bharat Insurance Company with the Chartered Bank of India, Australia China, Ltd., Bombay by means of Cheque Nos.
The said certificate As number been received by us as yet.
3,34,039 15 3, the balance of the sale proceeds was deposited in the accounts of the Insurance Company.
The sale transactions companysisted in the sale of the securities held or supposed to be held by the companypany to a broker and the price obtained from the sale was unutilised in purchasing formally further securities which were number received The purchase transaction followed the same pattern, viz.,
On September 9, 1954, Chokhani issued two cheques, one for Rs.
Thereafter, 30/ 1957 securities of the face value of Rs.
These securities were then sent to Bombay and sold there.
The personal employees of Dalmia were thus treated as the employees of Bharat Union Agencies.
Notice was issued by the Court to the State Bank of India to produce latter dated September 4, 1954, addressed by Dalmia to the Agent, Imperial Bank of India, and other documents.
The auditors were than to audit accounts of 1954 and number of 1955.
There is numberclear evidence as to how they Went from Delhi to Bombay.
Raghunath Rai states that be spoke to Dalmia a number of times, presumably, in July and August, 1955, about the number receipt of the securities of the value of Rs.
D. 1 and D. 2 respectively.
11,00,000.
Chokhani entered into a transaction of purchase of securities with a broker.
The total amount withdrawn by these two cheques viz.,
2,37,483 9 0, by wilfully suffering your companyaccused G. L. Chokhani to dishonestly misappropriate the said funds and dishonestly use or dispose of the said funds in violation of the directions of law and the implied companytract existing between you and the said Bharat Insurance Company, prescribing the mode in which such trust was to be discharged, by withdrawing the said funds from current account No.
The learned Sessions Judge relied on the following circumstances for his companyclusion that Dalmia was synonymous with Bharat Union Agencies.
Bharat Union Agencies was known and taken to be the companycern of Dalmia by its then Accountant Dhawan and by the brokers with whom it had dealings Chokhani, who hold power of attorney on behalf of Dalmia and Bharat Union Agencies, told the brokers at the time he gave business of Bharat Union Agencies to them J. that it was the business of Dalmia.
criminal breach of trust of the funds of the Bharat Insurance Company Ltd., by agreeing amongst yourselves and with others that criminal breach of trust be Committed by you R. Dalmia and G. L. Chokhani in respect of the funds of the said Insurance Company in current account No.
37,75,000 set from Delhi and Rs.
Very heavy losses were suffered in July and August, 1955.
As these securities did number exist with the Jnsuranco Company, these transactions were also paper transactions.
Loan securities of the face value of Rs.
He also issued, between August 13 and August 19.,
Thus Raghunath Rai did number actually know when and to whom and for what amount the cheques would be actually issued and therefore, so far as the companypany was companycerned, the real operation of its banking account was done by Chokhani alone.
1120 of the said Bharat Insurance Company with the Chartered Bank of India, Australia China, Ltd., Bombay, by means of cheque Nos.
7 of 61 .
60,00,000 Rs.
He was its agent during the relevant period.
The Union Agencies suffered Icsses in the relevant period from August 1954 to September, 1955.
The head office of the Bharat Insurance Company was shifted from Lahore to 10, Daryaganj, Delhi.
7 to 9 of 1961.
Needless to say that he utilised the cheques which had already been signed by Raghunath Rai, in pursuance of the arrangement to facilitate transactions on behalf of the Insurance Company.
Chokhani purchased, on December 9, 1954, 2 3/4 1960 securities of the face value of Rs.
By the same resolution, the words Managing Director in Article 12 of the Bye laws stating the powers of the Chairman, were substituted by the words General Manager.
The securities purchased were number delivered by the brokers to Chokhani.
On the same day, Chokhani entered into a companytract for the sale of 3 1959 61 securities of the face value of Rs.
Yours faithfully, For Bbagwati Trading Company Sd G. L. Cho khani Sd.
Being the Agent, in your capacity as Chairman of the Board of Directors and the Principal Officer of the Bharat Insurance Company Ltd., and as such being entrusted with dominion over the funds of the said Bharat Insurance Company, companymitted criminal breach of trust of the funds of the Bharat Insurance Company Ltd., amounting to Rs.
The securities were to be sold only if by the next due date for payment of interest they companyld number be recouped and did number exist with the companypany.
81,25,000, Rs.
This system led to the use of the companypanys funds for unauthorized purposes.
The firm of Khanna and Annadhanam, Chartered Accountants, was appointed by the Bharat Insurance Company, its auditors for the year 1954.
Resolution No.
by virtue of article 12, clause e , of the bye laws of the companypany.
Article 14 of the bye laws originally mentioned the powers of the Manager.
K. L. Gupta as General Manager and the necessary companyrections be made.
These securities were got endorsed in favour of the Insurance Company.
The remaining persons were Krishnan, Panohawagh and the clerks O. D. Mathur and Attarshi.
To companyer up this unauthorised transfer of funds, the various steps for the transfer of funds from one companypany to the other and the falsification of accounts of the Insurance Company and the Union Agencies took place and this companyduct of the accused gave rise to the various offences they were charged With and companyvicted of.
Dalmia was therefore, during the relevant period, both Chairman and Principal Officer of the Insurance Company.
52,00,000 were in the two offices on June 30, 1953.
35,00,000 respectively, on behalf of the Insurance Company.
2,200 from the account of the Bhagwati Trading Company with the Bank of India, according to his statement, gave this money to Chokhani in return for the amount Chokhani had advanced earlier for opening accounts for Bhagwati Trading Company with the Bank of India and the United Bank of India.
The companyt worked out to Rs.
2 in Cr.
57,72,000 were sent to Bombay on March 16, 1955, vide letter Ex.
The trial Court did deal with the point and held against the appellant Gurha.
On August 7 and 9, 1954, the Punjab National Bank, Bombay, received Rs.
The broker entered into a transaction of purchase of the same securities from a companypany named Bhagwati Trading Company which was owned by Vishnu Prasad, appellant, nephew of Chokhani and aged about 19 years in 1954.
We may number refer to the transactions which led to the obtaining of these stock certificates.
CRIMINAL APPELLATE JURISDICTION Criminal Delhi Appeal Nos.
75,00,000 and Rs.
56,00,000 3 1963 65 Rs.
In Palmers Company Law, 20th Edition, is stated at page 517 Directors are number only agents but they are in some sense and to some extent trustees or in the position of trustees.
A very large number of telephone calls took place during that period between Dalmia at Delhi and Chokhani at Bombay.
The Bharat Insurance Company had numbersufficient liquid funds in the Banks at Bombay.
These securites did reach Bombay.
405 and 409, I. P. C. If they were, Dalmia did number have dominion over them.
B 564835 issued in favour of M s. Bhagwati Trading Company Bombay, and, by dishonestly utilising the said funds for meeting losses suffered by you in forward transactions in shares carried on in the name of the Bharat Union Agencies Ltd., and for other purposes number companynected with the affairs of the said Bharat Insurance Company, and thereby companymitted an offence punishable under section 409 1.
60,500 were sent to Bombay vide Exs.
Mr. R. P. Gurha Dear Sir, I have to inform you that the various a mounts arranged by me as temporary loans to Bharat Union Agencies Ltd., Bombay Office from time to time in the name of Bbagwati Trading Company, actually represented the monies relating to the undernoted securitiesbelonging to Bharat Insurance Company Limited.
This time the transactions of sale of securities held by the Insurance Company and the usual purchase transactions relating to certain other securities were gone through.
It may also be mentioned that purchasing and selling securities was number really the business of the Insurance Company.
P. C., and within the companynizance of the Court of Sessions.
18,00,000 were received in Delhi.
He pursued the matter Departmentally and, eventually, the Government of India appointed Shri Annadhanam under a. 33 1 of the Insurance Act to investigate into the affairs of the companypany.
The stock certificate does number mention the date on which the securities were purchased and therefore it existence companyld prevent the detection of the fact that these securities were number purchased in August 1954 when, according to the books of the Insurance Company, they were shown to have been purchased.
Illegible Vishnuprasad Bairanglal Proprietor.
5 Sd R. Dalmia Chairman.
G. S. Lakhotia Gauri Sbadker Lakbotia s o etc.
35,00,000 and the other of Rs.
27,00,000 on behalf of Bhagwati Trading Company with Devkaran Nanjee, Brokers, Bombay, on November 3, 1954.
In order to enable Bhagwati Trading Company to pay the purchase price, Chokbani paid Rs.
July and August 1955 respectively, and Dalmia used to tell him that as the purchase and sale of securities had to be effected at Bombay, Chokhani companyld send them to the head office only after it had been decided about which securities would be finally retained by the Insurance Company.
69,00,000 which were purchased in the months of April May.
The pages are signed by K.L. Gupta, who was the General Manager of the companypany during, the relevant period, and number by Dalmia the Chairman, as De should have been the case in view of the resolution dated May 8, 1951.
The explanation seems to be that most of the securities were number really in existence.
S. N. Dudani Shri Niwas Dudani s o etc.
On January 11, 1955, Rs.
He resigned from these offices in 1942 and was succeeded by his brother J. Dalmia.
He instructed the brokers to endorse the securities in favour of the Insurance Company, even though the securities were being sold to Bhagwati Trading Company.
9,84,854 5 6, the net proceeds, were deposited in the Bank.
The misappropriation of funds of the companypany arose in this way.
Any debit or credit balance left thereafter in the said account would besettled later on.
Vishnu Pershad Bajranglal s oetc.
1954, cheque for Rs.
27,00,000 in August 1954 were repeated.
9,20,875 on the account of the Insurance Company with the Chartered Bank, in favour of Bhagwati Trading Company which deposited the amount of the cheques into its account with the Bank of India, Bombay.
24,00,000 to the Union Agencies through Chokhani.
46,00,000 in two lots, one of Rs.
Chokhani informed the head office at Delhi about these purchase transaction of securities worth Rs.
The others were acquitted.
The entire business for Bhagwati Trading Company was really companyducted by Chokhani.
Dalmia was further charged on two companynts for an offence under s. 409 I. P. C. These charges were as follows I Din Dayal Sharma, Magistrate I Class, Delhi charge you, R. Dalmia accused as under FIRSTLY, that yon R. Dalmia, in Pursuance of the said companyspiracy between the 9th day of August 1954 and the 8th day of August 1955, at Delhi.
By Resolution No.
80,00,000 bad been purchased by Chokhani on behalf of the Insurance Company and such securities bad number been sent to the head office at Delhi.
37,75,000 worth of securities were sent to Bombay from Delhi.
R1763 be opened with the Bank of India, Ltd., Bombay and current account No.
This can go to support the allegation that Dalmia knew about the shady transactions which were in progress from early August, 1954.
The period of criminal companyspiracy charged against the appellant is from August 1954 to September 1955.
The Company also had an account with this bank for the safe custody of its securities the companypany also had a separate current account with the Punjab National Bank, Bombay.
Exhibit P 786 is said to be the original Byelaws passed by the Directors on September 8, 1951.
On January 31, 1951, the Board of Directors of the Insurance Company passed resolutions to the following effect 1 To open an account in the Chartered Bank at Bombay.
22,81,738 2 0, A sum of Rs.
The Insurance Company did number ostensibly pay for the purchase of these shares but partially paid for it through another share purchase transaction.
The details of those transactions are given below.
By November, 19, 1954, securities of the facevalue of about Rs.
He remained the Chairman and Principal Officer of the Company till September 22, 1955.
The funds of Bharat Union Agencies were used to discharge an obligation personally undertaken by Dalmia.
Steps which were taken in companynection with the purchase of securities worth Rs.
1120 of the said Insurance Company with the Chartered Bank of India, Australia and China, Ltd., Bombay, the dominion over which funds was entrusted to you R. Dalmia in your capacity as Chairman and the Principal Officer of the said Insurance Company, and to you G. L. Chokhani, in your capacity as Agent of the said Insurance Company, for the purpose of meeting losses suffered by you R. Dalmia in forward transaction of speculation in shares which transactions were carried on in the name of the Bharat Union Agencies Ltd., under the directions and over all companytrol of R. Dalmia, by you, G. L. Chokhani, at Bombay, and by you, R. P. Gurha, S. Mittal and S. N. Dudani at Calcutta and for other purposes number companynected with the affairs of the said Insurance Company, by further agreeing that current account No.
9,37,473 5 9 between August 9 and August 13, 1954, on the account with the Punjab National Bank.
It was Rs.
There still remained 3 1959 61 securities of face value of Rs.
issued in favour of M s. Bhagwati Trading Company, Bombay, and cheque No.
4 dated March 10, 1949, Dalmia was company opted Director of the Company.
Dalmia and Chokhani were companyvicted under s. 409 I.P.C. Chokhani was also companyvicted under s. 477A read with s. 110, I. P. C. Gurha was companyvicted under s. 477A P. C. To appreciate the case against the appellants, we may first state generally the facts leading to the case.
11,00,000 and Rs.
R. P. Gurha Ragbubir Pershad Gurba s o etc.
Both on account of the necessity for obtaining the interest certificate and also on account of the expected check of securities by the auditors appointed for auditing the accounts of the Insurance Company for the year 1954, it became necessary to procure these securities or to sell them off.
On December 27, 1954, Chokhani purchased 2 3/4 1962 securities of the face value of Rs.
3 dated 10th March, 1949, and Resolution No.
15 put to him under s. 342, Cr.
4 dated 10th March, 1949, Resolution No.
A.I.R. 1936 Lah.
On September 9, 1954, Rs.
L. Kohli and A. N. Goyal, for the appellant in Cr.
1954, he withdrew Rs.
In this companynection reference may be made to Dalmias attitude to the auditors surprise inspection on September 9, 1954, on the ground that they companyld number ask for inspection of securities purchased in 1955.
L. Chordia, a relation of Dalmia and principal Officer of the Insurance Company, was appointed Managing Director on February 27, 1950.
This statement implies that Dalmia knew and anticipated the sale of those securities and such a sale of those securities, as already mentioned, companyld number be in the usual companyrse of business of the companypany.
23,00,000 suffered by the Union Agencies companyld be met.
L. N. Pathak, R. B. Jain and G. L. Dalmia, were authorised to operate on the account of both the Union Agencies, Calcutta, and Asia Udyog Ltd., with the United Bank of India, Calcutta.
Gurha used to sign these vouchers and when he fell ill,, they were signed by another Director, J. S. Mittal.
25,00,000 on behalf of the Insurance Company from M s. Naraindas Sons, Brokers.
9 of 1961 is by L.Chokhani and Vishnu Prasad.
3,00,000 on August 7 and August 9, 1954, respectively, in the account of the Union Agencies from Delhi.
We are sending herewith true companyies of Resolution No.
Appeal No.
On August 23.
Ltd., the paid up capital of which nearly all belonged to Dalmia was on the liquidation of that companypany taken over by Bharat Union Agencies and more or less the same persons companyducted the business of Bharat Union Agencies who were previously looking after Dalmia Cement Paper Marketing Company.
The modus operandi of the joint operation of the bank account by Chokhani and Raghunath Rai amounted, in practice to Chokbanis operating that account alone.
The due dates of interest of 3 1963 65 securities purchased in August 1954 were June 1 and December 1.
In G. E. Ry.
33726, of Cho khani.
The real nature of the sale and purchase transactions of the securities did number companye to the numberice of the head office of the Insurance Company at Delhi as Chokhani companymunicated to the head office the companytracts of sale and purchase with the brokers statements of accounts, with a companyering letter stating the purchase of securities from the brokers, without mentioning that the securities had number been actually received or that the cheques in payment of the purchase price were issued to Bhagwati Trading Company and number to the brokers.
17,50,000 held by the Insurance Company were withdrawn from its Safe custody account with the Imperial Bank of India, New Delhi, by letter Exhibit P. 1351 under the signature of Dalmia.
9 of 1961 .
8 of 1961 is by R.P.Gurha.
In 1936, Dalmia purchased certain shares of the companypany and became a Director and Chairman of the companypany.
The business done in the name of Dalmia with Jagdish Jagmohan Kapadia was treated as the business of Bharat Union Agencies.
The 1954 securities sold were to mature on November 15, 1954.
A. No.
468, 409.
8 of 1961 .
From 1951 to 1953, Chokhani alone operated on that account.
11,00,000 on behalf of the Insurance Company.
V. G. Kannan Vellore Govindaraj Kannan S o etc.
7 of 1961 is by R. K. Dalmia.
This was a fictitious transaction, as usual, and these securities were number received from the Union Agencies.
Securities were sent to Bombay from Delhi seven times during the relevant period and they were of the face value of Rs.
They were sold on January 11, 1955.
The prosecution case is that to provide funds for the payment of these losses at the due time, the accused persons entered into the companyspiracy for the diversion of the funds of the Insurance Company to the Union Agencies.
The saving of Bank charges is numbergood explanation for keeping the securities of such a large amount, which formed a large percentage of the Companys holdings, in the offices and number in deposit with a recognized bank.
K. Daphtary, Solicitor General of India, R. L. Mehta and R. H. Dhebar, for the respondents.
April 5.
They were purchased in September, 1954, as already mentioned, but had number been received up to the end of December.
79,00,000 3 1966 68 Rs.
Dalmia himself handed over inscribed stock certificate to Raghunath Rai some time in the end of January 1955.
A. No.
Appeal No.
Bharat Insuirance Company was incorporated in 1896.
Prem Nath Chadha, Madan Gopal Gupta and R. Choudhri, for appellant No.
The Judgment of the Court was delivered by RAGHUBAR DAYAL, J. These three appeals are by special leave.
16,00,000 to it from the account of the Bharat Union Agencies with the Banks at Bombay, and Rs.
During this relevant period, this companypany had its current account in the Chartered Bank of India, Australia and China Ltd. hereinafter called the Chartered Bank at Bombay.
This lends weight to the significance of the telephonic companymunications between Delhi and Bombay in the critical period of August and early September, 1954.
15,50,000 and stock certificates of 3 Loan of Government of Madhya Pradesh of the face value of Rs.
On September 4, 1954, securities of the face value of Rs.
22,00,000.
The securities were, however, got endorsed in the name of the Insurance Company.
J. S. Mittal Jyoti Swarup Mittal s o etc.
Securities worth Rs.
Dalmia was companyopted a Director on March 1.0, 1949 and was again elected Chairman of the companypany on March 19, 1949 when his brother J. Dalmia resigned.
Dalmia was appointed Principal Officer of the companypany with effect from August 20, 1954.
The securities were number delivered to the Insurance Company by Bhagwati Trading Company and yet Chokhani made payment of the purchase price from out of the funds of the Insurance Company.
There was two companymunications on September 4, one on September 5, three on September 6 and one on September 10, 1954.
Chokhani got the securities sometimes about December 21, 1954, and, therefore, got them companyverted into stock certi ficates which were then sent to the head office at Delhi.
10,00,000 were 2 1/40 1954 securities and the balance were 2 1/2 1955 securities.
27,00,000 was signed by Chordia, who was then the Managing, Director of the Bharat Insurance Company.
15,00,000 and the other for Rs.
Sometimes securities were kept with the Reserve Bank of India and inscribed stock was obtained instead.
The details of the first few transactions will illustrate how the whole scheme of diverting the funds of the Insurance Company to the Union Agencies was worked.
Chokhani made the payment by issuing a cheque for the amount in favour of Bhag wati Trading Company.
Chokbani used to get a number of blank cheques signed by Raghunath Rai, who worked at Delhi.
All the appellants were companyvicted of the offence under s. 120 read with s.409 P.C., and all of them, except Vishnu Prasad, were also companyvicted of certain offences arising out of the overt acts companymitted by them.
1,80,00,000 in cash or purchase the a fore said securities or their equivalent and deliver the same to Bharat Insurance Company Ltd., 10, Daryaganj, Delhi on my behalf, debiting the amount to the credit standing in the books of the Companys Bombay Office in the name of M s Bbagwati Trading Company.
On October 1, 1953, the Board of Directors directed that the current account of the companypany with the Chartered Bank, Bombay, be operated jointly by Chokhani and Raghunath Rai, P.W. 4.
Letter Exhibit P. 896 may be usefully quoted here SEC The Agent, 4 9 54 Imperial Bank of India, New Delhi Dear Sir, Re Safe Custody of Govt.
Chokhani purchased for the companypany from a broker, the broker purchased the same securities from Bhagwati Trading Company and the delivery of the securities was agreed to be given by Bhagwati Trading Company to Chokhani.
Co. v. Turner 1 Lord Selborne said The directors are the mere trustees or agents of the companypany trustees of the companypanys money and property agents in the transactions which they enter into on behalf of the companypany.
In order to have signed cheques in possession whenever needed, two cheque books were used.
To companyplete the entire picture, we may number mention the steps taken to companyer up the number receipt of securities purchased, at the proper time.
The share brokers sent statements of accounts dated August 6, 1954, to Chokhani and A. I.R. 1942 Lah.
On August 11, 1954, Chokhani got the statement of accounts from the brokers relating to the purchase of securities Worth Rs.
Ragbunath Rai, joined the companypany in 1921 as a Clerk, became Chief Accountant in 1940 and Secretary cum Chief Accountant of the companypany from August 17, 1954.
50,000 from Bhagwati Trading Companys account with the Bank of India and passed on the amount to the Union Agencies through Chokhani.
A.I.R. 1951 Pu n. 99.
All these cheques were drawn on the Chartered Bank, Bombay.
35,00,000 to be accounted for.
6,84,833 14 0 on the Bank of India, in favour of the share brokers at Bombay on account of the losses suffered by the Union Agencies.
By resolution No.
Appeal No.
Chokhani made the payment by issuing two cheques in favour of Bhagwati Trading Company, one for Rs.
Articles 116 and 117 deal with the powers of the Directors.
The Union Agencies suffered losses in its shares speculation business in the beginning of August, 1954.
By Resolution No.
8 dated September 8, 1951 was Considered the draft bye laws of the Company and Resolved that the Bye laws as per draft signed by the Chairman for identification be and are hereby approved in substitution and to the exclusion of the existing bye laws of the Company.
Article 13 of the bye laws mentions the powers of the Managing Director.
The Board of Directors, by resolution No.
The specimen signatures Card of the undersigned is also sent herewith.
10,00,000 and the other for the balance, i.e., Rs.
27,00,000, through letter dated August 16, 1954, and along with that letter sent the companytract numbere and statements of accounts received from the brokers.
Thereafter, whatever money was in the account of Bhagwati Trading Company with these Banks was the money obtained through the dealings entered into on behalf of Bhagwati Trading Company, the funds for most of which came from the Bharat Insurance Company.
By virtue of Art.
On August 12, 1954, Vishnu Prasad drew cheques for Rs.
4 dated August 30, 1954, of the Board of Directors, the General Manager was empowered to make, draw, sign or endorse, purchase, sell, discount or accept cheques, drafts, hundies, bills of exchange and other negotiable instruments in the name and on behalf of the companypany and to exercise all such powers from time to time incidental to the post of the General Manager of the Company and number otherwise excepted.
20,64,058 6 9.
Exhibit P 785 companysists of the Memorandum of Association and the Articles of Association of the Bharat Insurance Company.
9,00,000 in the account of Bhagwati Trading Company in the United Bank of India.
a dated March 19, 1949, Dalmia was elected Chairman of the Board of Directors.
The letter Exhibit P. 896 number only supports the statement of Raghunath Rai about the companyy of the bye laws supplied to the Bank to be a certified companyy but also the admission of Dalmia that he was empowered to deal in Government Securities etc.,
Clause 12 of this article empowers the Managing Director to make, draw, sign or endorse, purchase, sell, discount or accept cheques, drafts, hundies, bills of exchange and other negotiable instruments in the name and on behalf of the companypany.
4 dated October 6,1952 resolved that these powers be exercised by.
8 dated 8th September, 1951, along with a certified companyy of the Bye laws of the Company for registration at your end.
The total companyt of those securities worked out at Rs.
The matter, however, came to a head number on account of the auditors report, but on account of Shri Kaul, Deputy Secretary , Ministry of Finance, Government of India, hearing at Bombay in September 1955 a rumour about the unsatisfactory position of the securities of the Insurance Company.
These securities so endorsed were received on November 24, 1954, and were companyverted into inscribed stock Stock Certificate Exhibit P. 920 from the Reserve Bank of India on December 7,1954.
Yours faithfully, Encls.
He drew another cheque for Rs.
4,40,000 in the account of the Union Agencies with the Punjab National Bank Ltd. The Punjab National Bank Ltd., Bombay, as already mentioned, had received deposits of Rs.
90,000 from Bhagwati Trading Companys account with the United Bank of India and Rs.
5,10,000 from its account with the Bank of India and passed on these amounts also to the Union Agencies through Chokhani.
25,33,193 6.6 withdrawn by Chokhani from the account of the Bharat.
Of companyrse, there is numberevidence about the companyversation which took place at these talks.
9,60,000 in the account of the Bhagwati Trading Company with the Bank of India, Bombay, and companylected the amount personally.
The amount was companylected by his father Bajranglal.
The purchase price was paid out of the funds of the Union Agencies and Bhagwati Trading Company.
Chokhani was number empowered by any resolution of the Board of Directors to purchase and sell securities.
Dalmia and Chokhani state that Dalmia had authorised Chokhani in general to purchase and sell securities and that it was in pursuance of such authorisation that Chokhani on his own purchased and sold securities without any further reference to Dalmia or further instructions from Dalmia.
by taking a step similar to those taken for the purchase of securities in August and September, 1954, already referred to.
6,25,000 were transferred from Delhi to the account of the Insurance Company with the Chartered Bank, Bombay, by telegraphic transfer.
15,000 was deposited in the Punjab National Bank.
7,00,000, in the account of the Union Agencies with the United Bank of India and Rs.
Ultimately, the formal companyfirmation of the purchases was obtained on August 30, 1954, from the Board of Directors at its meeting for which the office numbere Stating that the securities were purchase under the instruction of the Chairman Dalmia was prepared.
The significance of these calls lies in their taking place during the period when the scheme about the diversion of funds was companying into operation for the first time, but in the absence of evidence as to what companyversation took place, they furnish merely a circumstance which is number companyclusive by itself.
Most of the securities were sent to Delhi and kept with the Imperial Bank of India there.
Insurance Company and paid over to Bhagwati Trading Company, Rs.
3 To for the keeping of the Government securities had by the companypany, in safe custody, with the Chartered Bank.
No mentioned was made in the letter about the payment being made to Bhagwati Trading Company through cheques or about the arrangement about getting the securities from Bhagwati Trading Company or about the postponement of the delivery of the securities by that companypany.
11,00,000 were purchased by Chokhani on November 16, 1954.
On August 13, he issued cheques on the account of the Union Agency with the United Bank of India in favour of the Bombay brokers on account of the losses of the Union Agencies, for Rs.
