The National Housing Bank (NHB) plans to request the special court to stay the payment of Rs 960 crore to ANZ Grindlays after an arbitration court ruled on Saturday ruled in favour of the foreign bank in a case arising from the securities scam of 1992.
NHB wants a stay till the verdict of the arbitration panel is ratified or dismissed by special court judge SN Variava.
In a 2:1 split decision, the arbitration panel ruled that the sum of Rs 506 crore that ANZ Grindlays paid National Housing Bank at the directive of the Reserve Bank must be returned with interest within 21 days.
The dispute had arisen over the payment of Rs 506 crore by NHB to Grindlays, which was credited to the account of stock broker Harshad Mehta.
The Reserve Bank asked ANZ Grindlays to return the money on the grounds that money was wrongfully credited to the account of Harshad Mehta. However, ANZ Grindlays maintained that it was market practice and therefore allowed.
The foreign bank paid the money only after RBI agreed to set up the arbitration panel. The panel decided in favour of ANZ Grindlays after more than five years.
The arbitration panel now has to file the award with the special court of Justice Variava and after that the NHB can challenge the award within the next 30 days.
Sources say that once the arbitration panel files its case in the special court, NHB will seek a stay on the payment.
With the panel split on the verdict, sources claim that NHB has a good chance of getting a stay. Of the three retired judges on the panel, two including the presiding arbitrator MH. Kania and NN.
Chandurkar ruled in ANZ Grindlays favour. The third arbitrator M M Dutt ruled in NHBs favour.
The award states that NHB failed to establish employee fraud and also failed to prove ownership of the cheques as required under section 131 of the Negotiable Instruments Act.
It was also pointed out that NHB has no explanation for the amount handed over to Harshad Mehta even though it claimed to have to dealings with the broker. National Housing Bank also possessed securities worth this amount and not other sources of these securities could be established and hence the award in favour of ANZ Grindlays.
The panel has also said that interest on the sum of Rs 506 crore should be paid at a rate of 14 per cent from the day that ANZ Grindlays paid the money to NHB and the day of the award and from then on at a rate of 18 per cent.
Dutt, the dissenting arbitrator, said the payment made by ANZ Grindlays was correct and represented the legal position. He ruled that the foreign bank could not have deposited a third party cheque in Mehtas account legally.
Dutt said NHB should retain the money and also get interest at the rate of 18 per cent for the period from the date of the transactions till the date of the original payment.
The decision in favour of ANZ Grindlays will come as a big boost for State Bank of India which is also contesting a similar case over the payment of Rs 707 to ANZ Grindlays.
However, the Reserve Bank has said it will fully support NHB in fighting the case. In the worst-case scenario, it will recapitalise NHB to enable it to make the payment.
