How could National Housing Bank give stock broker custody of a Rs. 95.39-crore cheque?

The Supreme Court on Wednesday pulled up the Centre for failing to get at the truth of the securities scam indulged in by the late stock broker Harshad Mehta and directed the National Housing Bank to return to the State Bank of India Rs. 95.39 crore with 19 per cent interest from 1992 (about Rs. 900 crore.)

A Bench of Justices R.M. Lodha, J. Chelameswar and Madan B. Lokur said: “The scandal exposes the shortcomings and loopholes in the administration of the banking sector, particularly the state-owned/controlled banks. The scandalous thing about the litigation is that the plaintiffs led no evidence. They merely tendered certain documents but did not bother to prove them in spite of a caution by the Special Court.”

Writing the judgment, Justice Chelameswar said: “No attempt appears to have been made by the government to find out the truth as to how the plaintiff bank parted with a high denomination cheque and gave custody of the same to Harshad Mehta and as to how the NHB paid the various amounts to the dictation of Harshad Mehta in the absence of any authorisation by the plaintiff bank. Be that as it may, if the government really believed that the judgment of the Special Court does not require any interference, nothing stopped the government from directing both banks to withdraw their appeals before this court. The whole exercise appears to be eyewash. A thinly veiled scorn for the orders of this court. The professed purpose of the Special Courts Act — the backdrop of the scandal that shook the nation — and the manner in which the litigation was conducted, coupled with the absolute indifference of the government to get at the truth, only demonstrate the duplicity with which governments can act.”

In this case, the NHB in 1992 gave a cheque for Rs. 95.39 crore to Harshad Mehta, who deposited it in his individual account with the SBI and used the amount to pay Canfin. The NHB later moved the Special Court for Trial of Offences Relating to Transactions in Securities to get back the money from the SBI. It alleged conspiracy, fraud and collusion between the SBI and Canfin. But the special court rejected the plea in 1999. The present appeal is directed against this order.

The former Additional Solicitor-General, Biswajit Bhattacharya, appeared for the SBI.

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