Company Law Board
Cardiff Chemicals Limited vs Fortune Bio-Tech Limited And Mr. Annam ... on 23 January, 2004
Equivalent citations: [2005]126COMPCAS275(CLB), (2006)6COMPLJ378(CLB), [2004]55SCL645(CLB)
ORDER
K.K. Balu, Member
1. This is a petition filed under Section 113 of the Companies Act, 1936 ("the Act") by M/s Cardiff Chemicals Limited ("the petitioner") seeking directions against M/s Fortune Bio-tech Limited ("the Company") and its Managing Director to deliver the share certificates in respect of 3,39,401 shares of Rs. 10/- each of the Company allotted in favour of the petitioner on 25.10.1996 and further to launch prosecution by the Registrar of Companies against the respondents in terms of Section 113(2) of the Act.
2. The facts, in brief, as reiterated by Shri Arvind P. Datar, learned Senior Counsel, the petitioner had in December 1995, participated in the equity of the Company by investing £65,000, upon which the Company at its annual general meeting held on 25.10.1996 allotted 3,39,401 shares of Rs. 10/- each. In spite of repeated demands both oral and written, as borne out by Annexures E, F & I and the complaint made before the British Deputy High Commission (Annexure G), the Company failed to deliver the share certificates in respect of the shares allotted in favour of the petitioners. Dr. C.M. Pant, Director of the petitioner neither took physical delivery of the shares on 18.12.1996 nor gave any acknowledgement and never pledged the said shares in favour of one Shri Sunil Yatha, as contended by the Company. Shri Datar, learned Senior Counsel pointed out that there was no need to take any loan from Shri Yatha and further discounted the alleged delivery of share certificates of huge value of £65,000 by the Company without any acknowledgement being unrealistic and imprudent. The learned Senior Counsel vehemently contended that the letter said to have been signed by Dr. Pant, hypothecating the shares in favour of Shri Yatha is not a genuine document and that no such undated letter was ever signed by Dr. Pant. The respondents illegally fabricated the said letter by misusing certain blank papers, which were signed by Dr. Pant, being resident of Cardiff and handed over the same to the respondents for signing various documents and applications etc. The learned senior Counsel further pointed out that the respondents have not even furnished the photocopy of the share certificates to substantiate their claim that the share certificates were physically delivered to the petitioners. Though the share certificates were said to be pledged in favour of Shri Yatha, not even photocopy of the certificates is produced either by the petitioner or Shri Yatha. The theory of pledge of the shares by Dr. Pant in favour of Shri Yatha is only to circumvent the statutory obligation imposed on the Company and must be ignored in the light of the judgment of the High Court of Andhra Pradesh in the appeals preferred against the orders dated 04.09.2000 and 03.10.2000 of the CLB for impleadment of Shri Yatha. By virtue of Section 113, the Company must, within three months after the allotment of its shares, deliver the certificates of all shares in accordance with the procedure laid down in Section 53. Section 53 contemplates delivery of documents on any member by a Company either personally, or by sending it by post to him in the manner specified therein. There is no proof to show that the Company had given physical delivery of the share certificates to Dr. Pant. In this connection, the learned Senior Counsel referred to Section 106 of the Indian Evidence Act, 1872 to show that when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him and also Section 114 by which the Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business in their relation to the facts of the particulars case. Accordingly, the CLB may presume that the Company while delivering the share certificates worth several lakhs ought to have obtained proper acknowledgement by the Company from Dr. Pant. Shri Datar, learned Senior Counsel, while concluding his arguments, urged that the burden of proving delivery of the share certificates to Dr. Pant has not been established by the Company. In these circumstances, the petitioner is entitled to delivery of the share certificates in accordance with Section 113 of the Act and accordingly prayed for appropriate directions against the Company.
3. Shri C.K. Narasimham, learned Counsel appearing for the respondents contended that the petition is not maintainable, in the absence of any violation of the provisions of Section 113 of the Act, by the Company. According to the learned Counsel, the shares allotted in favour of the petitioner were duly delivered to Dr. Pant. The said shares were hypothecated by the petitioner in favour of Shri Yatha by way of security for repayment of the loans taken by the Company, in support of which the learned Counsel relied on an affidavit dated 19.11.1999 sworn by Shri Yatha to the effect that Shri Yatha had remitted in the year 1993 an aggregate amount of US $ 20,000 to the petitioner and copy of a letter of Dr. Pant, evidencing the hypothecation of the shares with Shri Yatha to secure the loan provided to the Company. The plea of Dr. Pant that the said letter was fabricated one and that Dr. Pant had left signed blank papers with the respondents is quite improbable and is extremely unlikely as held, in R. Khemka v. Deccan Enterprises Pvt. Ltd. - 1999 (1) ALT 628 (D.B.). This assertion of the petitioner involving serious disputes would require detailed examination of the evidence, in which case the CLB must relegate the parties to a regular civil suit, in support of which the learned Counsel relied on the decisions in Ammonia Supplies Corporation Private Ltd. v. Modern Plastic Containers Pvt. Ltd. - [1994] 79 CC 163 and Smt. Kamla Devi Mantri v. Grasim Industries Ltd. - [1990] 69 CC 188. Section 113(3) is concerned with an order directing the Company to make good the default under Section 113(1). Any order by the Company Law Board in relation to any other alleged defaults on the part of the Company would not fall within the 'CLB's jurisdiction as held in Mrs. Trishla Jain v. Oswal Agro Mills Ltd. -[1996] 86 CC 48. Though the shares were allotted as early as in the year 1996, the petitioner approached the CLB, after a delay of three years, disentitling for any relief, for which reliance has been placed on Suresh Kumar Manchanda v. Prakash Roadlines Ltd. According to Shri Narasimham, learned Counsel the moment when the shares were pledged in favour of the Shri Yatha, the petitioner had lost its title in the shares and has no locus standi to maintain the present petition, as held in Jagdishchandra Champaklal Parekh v. Deccan Paper Mills Co. Ltd. - [1994] 80 CC 159. For these reasons, Shri Narasimham, learned Counsel prayed for dismissal of the petition.
4. After considering the pleadings and arguments of learned Counsel, the short question that arises for my consideration is whether the Company defaulted in delivering the share certificates in respect of 3,39,401 shares allotted in favour of the petitioner. While the petitioner contends that the Company never delivered the share certificates, the same is stoutly denied by the latter. A careful perusal of the records made available before me reveals that the Company had allotted 3,39,401 shares as early as in the year 1996 to the petitioner. The petitioner had demanded delivery of the share certificates by its letters dated 24.03.1998 & 13.04J998 (Annexure E & F). It is clear from the letter dated 24.03.1998, the petitioner had insisted for the share certificates even in December 1997, which is explicitly reiterated in the legal, notice dated 20.10.1998 (Annexure I) issued to the Company on behalf of the petitioner. The respondents have neither denied these communications either in their reply notice dated 03.11.1998 (Annexure J) or counter to the petition nor replied any of them, which remain unanswered. The Company, for the first time, in its communication dated 09.05.1998 (Annexure H) addressed to the British Deputy High Commission in reply to the complaint made by the petitioner categorically stated that Dr. Pant had taken physical delivery of the shares during his visit to Hyderabad on 18.12.1996; that Dr. Pant borrowed some money from one Shri Sunil Yatha (emphasis supplied) and that Dr. Pant pledged the said shares by way of security in favour of Shri Yatha. However, the affidavit sworn by Shri Yatha shows that he had remitted on 27.07.1993 a sum of US $ 10,000 and again on 05.02.1993 a further sum of US $ 10,000 in favour of the petitioner (emphasis supplied). The affidavit further discloses that the shares were pledged in favour of Shri Yatha by the petitioner as security for repayment of the loan amount due from the petitioner. This contradiction has no explanation. According to Shri Yatha, the amounts were lent in the year 1993, but the shares were said, to be delivered to the petitioner in the words of the Company only in the year 1996. Moreover, the letter of Dr. Pant addressed to Shri Sunil Yatha pledging the shares does not bear any date. The learned Counsel for the respondents failed to throw any light on these aspects. At this juncture, it shall be borne in mind that in the appeals filed before the High Court of Andhra Pradesh by Shri Yatha against the orders of the CLB directing impleadment of Shri Yatha and production of the original share certificates together with the pledge documents, the High Court while setting aside both the orders of the CLB observed that the scope of the enquiry under Section 113 is confined only to whether the Company had delivered the share certificates allotted to the petitioner or not. The CLB does not have the jurisdiction to go into any other aspect to enquire into. The issue of delivery of the share certificates or otherwise has to be adjudicated upon the evidence produced by the petitioner and the respondents. The claim of Shri Yatha, being third party that the shares were pledged with him is not at all a relevant issue for the purpose of adjudication of the issue before the CLB. Accordingly, it shall be seen from the evidence produced before me, whether the claim of Company that the share certificates in respect of the shares allotted to the petitioner were delivered in accordance with the provisions of Section 113(1) of the Act is true or not. Sub-section (1) recognizes both personal and postal service of a document. Though it is contended by the Company in its communication addressed to British Deputy High Commission (Annexure-H), that Dr. Pant had taken physical delivery of the shares on 18.12.1996, yet, the date of delivery of the share certificates is not conspicuously found in the Counter filed on behalf of the respondents. Admittedly, at the relevant point of time, Dr. Pant was resident of Cardiff, United Kingdom. There is ' no document substantiating the assertions of the Company or not even the Company's dispatch register which is supposed to show the physical delivery of the share certificates to the petitioner. It is rather extremely unlikely that the Company would part with the share certificates worth several lakhs of rupees without any acknowledgement from Dr. Pant. The burden of proving delivery of the share certificates to the petitioner is upon the Company, failure of which it could not be said that the Company becomes discharged from its obligations imposed under Section 113(1). The Company did not choose either to produce counterfoil of the share certificates said to have been delivered to the petitioner or furnish at least particulars of the shares such as registered folio, certificate Nos. and distinctive Nos. of the shares etc. The decisions cited by learned Counsel for the Company do not apply to the facts of the present case. In other words the Company has not produced any conclusive proof that it had delivered the share certificates to the petitioner. I, therefore, do not hesitate to hold that the Company defaulted in delivering the share certificates and further direct the Company to make good the default under Section 113(1) by delivering the share certificates in respect of 3,39,401 shares allotted in favour of the petitioner, within 21 days from the date of receipt of the order. With this direction, the petition stands disposed of without any order as to costs.