Company Law Board
Calcutta Security Printers Limited vs Calcutta Phototype Company Limited And ... on 28 February, 2002
ORDER
C.R. Das
1. This petition arises on account of an allegation by the petitioner that a transfer of 3450 shares claimed to be belonging to the Petitioner in Respondent No. 1 were illegally and fraudulently transferred, as claimed, under forged transfer deed pursuant to a gift deed showing the Petitioner No. 1 as having transferred as many shares to Respondent No. 2. The Petitioner Calcutta Security Printers Limited is a public limited, listed company, Respondent No. 1 is a public company. Respondent No. 2 is the daughter of the Shri Vijay Bhargava, Managing Director of Respondent No. 1.
2. The brief of the case are that the Managing Director of the Petitioner company is Shri Deepak Bhargava (DB) and that of the Respondent company is Shri Vijay Bhargava (VB), DB and VB are brothers. Their common interests seem to have split sometime in 1998 since when the two companies have been functioning independently, although in admittedly similar lines of business. VB was also the Executive Director in the Petitioner company till 2nd March 1998 when he seems to have resigned. The petitioner was holding 3600 shares in the Respondent No. 1. These shares have been held for several years, until the impugned transfer was made. Pursuant to the impugned transfer, the shareholding of the Petitioner stands reduced to 150 shares, 3450 shares having been transferred. The facts relating to the impugned transfer are so follows, and we may mention that these facts are not admitted, as they are very subject matter of the case before us :-
On 28th August, 1998, DB on behalf of Petitioner No. 1 appears to have written a letter to Respondent No. 1 wherein DB states that Petitioner No. 1 is not able to trace the share certificates relating to the 3600 shares held by them, and requests Respondent No. 1 to issue duplicate share certificates, at the same time also splitting them into 34 scrips of 100 shares each and 4 scrips of 50 shares each. In the said letter, DB also states that Petitioner No. 1 will keep Respondent No. 1 "indemnified from all losses or damage caused or to be caused to or suffered or would be suffered for any claim (s) arising out of the issuance of duplicate share scrips" to the Petitioner. This letter is typed out. apparently using a manual typewriter on a plain sheet of paper, with DB's signatures under a rubber stamp in the name of the Petitioner.
On the same day, that is, on 28thAugust itself, Respondent No. 1 appears to have passed a Board Resolution approving the issuance of duplicate share certificates. The prelude to the Resolution states as follows: "The Chairman informed the Board that a request for issuance of duplicate share certificates have been received from Calcutta Security Printers Limited which is holding 3600 shares in our company. As the Board is well acquainted with the Calcutta Security Printers Limited and its directors, it is deemed appropriate to dispense with the requirements of Public Notice in the instant case."
It is notable here that there are two main requirements for issuance of duplicate share certificates, both as per the Articles of Association of the Company as also as per Companies (Issue of Share Certificates) Rules 1960 (Share Certificate Rules) -- indemnity and notice. The Board Resolution as above has apparently dispensed with the requirement of public notice, but has not alluded to at all as far as indemnity is concerned, a point to which we come back to later. After the said Board Resolution approving duplicate share certificates and split certificates was purportedly passed, Respondent No. 1 seems to have hand-delivered the said share certificate to DB. This is purportedly evidenced by a Receipt dated 15th September 1998, on which signatures of DB appear. Once again, this receipt is typed out on a manual typewriter on which DB has allegedly signed with a rubber stamp in the name of the Petitioner. The third and the most critical disputed evidence in the case is a letter dated 3rd December 1998, again typed out on a plain sheet of paper, using a manual typewriter, allegedly signed by DB. In this letter, DB states the "as a gesture of appreciation, for the long and meritorious services rendered by you, as Chief Executive Officer of Calcutta Security Printers Ltd., at the head office of the Company, the Board of Calcutta Security Printers Limited has unanimously decided to gift you 3450 equity shares of the Calcutta Phototype Co. Ltd. so far held by Calcutta Security Printers Ltd." The said letter further goes on to say: "As desired by you, the said shares are being transferred to your two unmarried daughters Miss Shreeti & Shriya Bhargava. The duly signed and executed share certificates for 3450 share are enclosed". Shriya and Shreet Bhargava are the daughters of VB, and are Respondent No. 2 in this case. The fourth piece of disputed evidence is a transfer deed allegedly signed by DB on behalf of Petitioner No. 1 transferring 3450 shares to Respondent No. 2 DB's signatures have been attested by a banker. The form has been executed by the transferees by signing it on 17th December, 1998, and interestingly, on the very same date, that is, on 17th Dec., 1998, the transfer has been registered by Respondent No. 1. Pursuant to registration of the said transfer, the shareholding of the Petitioner stands reduced from 3600 shares to 150 shares, 3450 shares having been transferred as above.
3. The Petitioner comes to us alleging fraud and illegality. The main contention of the Petitioner is that entire scheme behind the alleged transfer starting from a request for issuance of duplicate shares and culminating in registration of 3450 shares having been transferred pursuant to a gift is a stage show enacted by Respondent No. 2 in collusion with Respondent No. 1. The petitioner, briefly, contends that the request for issue of duplicate shares and the receipt thereof, the letter of 3rd December evidencing a gift of 3450 shares by the Petitioner, and the transfer deed are all forged. Under facts and circumstances, the gift of the shares could not have been made by the Petitioner to VB, its ex-employee whose employment had been terminated and lawful gratuity had been paid, and even while there was pending disputes about release of properties of the company being detained by VB for which Petitioner was threatening to go to Court. The Petitioner contends that the issuance of duplicate shares on the day on which the request therefor was made, and the registration of transfer of the said shares on the day on which the deed was executed both prove that Respondent No. 1 was in an undue hurry to have the said shares transferred to Respondent No. 2 at the behest of VB. The original share certificates of the impugned shares continued to be with the Petitioner and are still with the Petitioner while duplicate thereof has been issued and transfer effected. No Board resolution for the alleged gift, purportedly made by a unanimous resolution of the Petitioner company was ever passed, and in course of proceedings before the Bench, no copy of any such resolution has been produced at any stage.
4. Shri Vinod Kothari, practising company secretary appearing on behalf of Petitioner tried o satisfy us as to whether the case falls within our jurisdiction. The company being a public limited company, the case falls under Section 111A. Shri Kothari contends that the rights of the CLB to deal with the instant case are clear from Section 111A (7) read with Section 111 (7) By virtue of Section 111A (7), the Provisions of Section 111 (7) are imported into Section 111A. Section 111 (7) empowers the Board to decide any question relating to the title of any person being a party to the proceedings before the Board. The key question in the instant case is whether the impugned transfer was an illegal and forged transfer as alleged. Determination of this question is clearly connected with determination of title, which is well within the powers of the Board. Hence, satisfied that the request for rectification of register of members of Respondent No. 1 as prayed for falls within our jurisdiction.
5. Shri Sanjay Kumar Gupta, Practising Company Secretary, appearing for the Respondents, raises a preliminary issue of limitation. According to Shri Gupta, the Respondent had caused an inspection of the Annual Return of the Respondent company on 24th January 2001 from the office of the Register of Companies, West Bengal, wherein the impugned transfer of shares was evident. So, if the 24th Jan 2001 is taken as the date on which the Petitioner acquired knowledge of the impugned transfer, the petitioner must have been filed within a period of 2 months, which expired in March 2001. The petition was actually filed on 20-07-01.
6. On the other hand, Shri Kothari argues that the present case is a case of a fraudulent transfer made at the back of the Petitioner, in which case, a preliminary objection on the ground of limitation is not understandable. Shri Kothari contends that in case if fraud is proved, the question of limitation should not be alleged to creep in since no fraud becomes a legality even with lapse of time; and if the fraud is not proved, the petition any way loses on merits. Further, the Petitioner claims that the Petitioner was not aware, and if the contentions as regards forged transfer are established, could not have been aware, of the impugned transfer. The Petitioner became aware that there has been a transfer as a result of which the petitioner's shareholding stood reduced on 24th Jan 2001, but there was no basis of knowing how such transfer could have been achieved while the Petitioner was all the time having the original share certificates with him. The Petitioner contends that the Petitioner was not aware of the impugned transfer until the Affidavit in Reply was filed on behalf of the Respondents; therefore, the issue of limitation cannot be raised.
7. On consideration, we have decided to cross the barrier of limitation. Where knowledge of an alleged transfer is the very subject matter before the Board, it is not understandable as to how a limitation period that runs from the date of the knowledge could be a matter of argument. In any case, a liberal opinion has been taken on the issue of limitation in cases involving forgery by the Board. Forged transfers backed by issuance of duplicate shares have become a menace for system and several such cases have come up before this Board in the past. The methodology, with individual variations, in most of these case is the sake: a request is made for issuance of duplicate shares on behalf of a shareholder, under a forged signature. Soon after receiving such duplicate shares, the shares are sold off under a forged transfer deed. Usually, such cases happen with the complicity of the officials of the company, but mostly, they involve the services of professional forgoers who are adept in the art of reproducing signatures. It is for this reason that various regulatory and professional bodies have adopted utmost caution in issuance of duplicate shares, particularly when the issue of duplicate shares is soon followed by a request for transfer. Coming to the substance of the Petition, Shri Kothari submits that the main thrust of the Petition is the forgery involved in transferring 3450 shares belonging to the petitioner. Shri Kothari submits that the key issue in the instant case is not legal compliance: it one of fraud and forgery. That there are various irregularities in both the issuance of duplicate shares only further strengthens the case made by him, but even if there were all procedural compliances in registering the impugned transfer, the transfer could still not be claimed to be valid if it is based on forged papers. Shri Kothari contends that a fraud does not gain substance merely by legal compliance: A fraud is a nullity even if it is done with meticulous compliance of procedures.
8. Shri Kothari further contends that the fraud is evidenced by clear circumstantial evidence, which, according to Shri Kothari's submission, is that -
(a) DB has purportedly written and signed three successive letters: request for duplicate shares, receipt of duplicate shares, and the letter of gift, on there different dates spanning over a period of 5 months. In all the three cases, the official stationery of the Petitioner company was not used and the letters were written on plain paper. Besides, all the three letters used a typographical device which is markedly different from the one normally used by the Managing Director of the Petitioner. According to Shri Kothari, it is not understandable that a managing director of a company will use plain paper to write important official letters, and that too from the head office of the company where full support of the company's secretarial staff is available. It would have been understandable on one occasion, but surely not on three different occasions over 5 months' span. By way of a sample, Shri Kothari has produced along with his written submissions other letters written by DB to VB being letters dated 26th August and 8th Sept where both the typography is different and the letters have used the official stationery of the company.
(b) The request for duplicate shares was purportedly made on 28th August and the Board Resolution of the Respondent was passed on the same date.
(c) Similarly, the share transfer deed relating to the impugned transfer was 17th Dec. 1998 and was registered by the Company on the same date. As contended by Shri Kothari, both these board resolution are vitiated as they reflect undue hurry on the part of VB who was keen to have shares transferred in the name of his daughters. The Board meetings could not have been held as the law requires a notice in writing to be served on the Directors of the company. Shri Kothari contends that the Board of the Respondent company at the relevant time included nominees of the West Bengal Financial Corporation, and it is inconceivable that several events in a chain -- receipt of a request for duplicate shares or for transfer of shares, making a service of a written notice, and the actual holding of the Board meeting could all be done on the same date.
(d) Shri Kothari contends that the story of a "gift" of the shares by the Petitioner to Respondent No. 2 is the most unbelievable element in the story concocted by the respondents. The donor in the alleged gift is a listed public limited company. It is unbelievable that a listed company will make a gift to its ex-employees, after due settlement of gratuity claims, particularly when legal suits were going on between the employer and the ex-employee.
(e) The Respondent company proceeded to register the transfer backed by a mere letter of gift of shares and never made any effort to ascertain the vires of the gift. The alleged gift has purportedly been made on the strength of an alleged resolution of the Board of directors of the Petitioner which the petitioner never passed. Nowhere has the Respondent asked for a obtained any such board resolution.
9. Shri Gupta's answers to the allegation of fraud is two fold: one, he relies on the report of a handwriting expert who has opined that the signatures on the impugned documents alleged by the Petitioner to have been forged are the same as the admitted signatures of DB. A copy of the report of the handwriting expert was filed in course of the proceedings. Two, he relies on Section 147 of the Companies Act to substantiate the view that even a plain paper can be treated as the official stationery of the company. The report of the handwriting expert states that "on inter-se comparison between all the signatures, I find that there are good consistency between all the signatures in respect of operation of letters, combination of letters, initial and terminal part, average speed of the writing."
10. In proceedings before this Bench, it has not been the practice to rely on forensic reports. In a case such as the one before us, the suggestion as to fraud against a shareholder is a result of a combined circumstantial evidence and cannot be based on whether the signatures as appear on the forged documents are consistent with the admitted signature of the Petitioner. It is a settled law that where a prima facie case of a fraud has been made against the defendant, the onus of proving that an alleged forgery was not in fact so rests on the defendant. In the present case, the circumstantial evidence cited by Shri Kothari is sufficient to discharge the primary onus to prove his allegation. It is now for the Respondents to prove their conduct. The Respondents cannot dispel the primary allegation of a forged transfer merely by relying on the report of a handwriting expert. A professional forgerer is expected to deft in his art of reproducing signatures and all that the report of the handwriting expert suggests is that the forged signatures are consistent with the admitted signatures. In a usual case of forged transfers, the main piece of evidence is the financial transaction between the transferee and the transferor. In the present case, by design, there is no financial dealing: there is no consideration flowing from the transferees as the transfer has been alleged to have been a gift. Therefore, the whole evidence rests on the evidence backing the gift. Obviously enough, the Petitioner denies having made any gift. The impugned shares are still being shown on the books of accounts of the Petitioner where no gift has been recorded. No evidence other than the letter of 3rd December 1998 has been produced by the Respondents to prove that there was a gift of the impugned shares. On the contrary, while the Petitioner has specifically demanded that the Respondents produced any Board Resolution of the Petitioner that might have been relied upon the by the Respondent company, the Respondent has neither produced any such board resolution nor cited any reference thereto. The impugned letter of 3rd Dec. 1998 says that the gift has been approved by the unanimous Board resolution of the Petitioner. At no stage, however, the Respondent seems to have ever bothered to collect a copy of the said Board Resolution. The Respondent company relied upon a simple letter, signed on a plain piece of paper. without enclosing therewith any stamped gift deed or any other evidence, and proceeded to register a transfer. No reasonable person can believe that a listed public company could be making a gift of its strategic shareholding in a competing company to the ex-employee of the company, with whom litigation or threat thereof, in relation to financial matters, is pending at the same time as the alleged gift. Other than the fact that the donee in the alleged gift were the daughters of the managing director of Respondent No. 1, there was no reason for Respondent No. 1 to have accepted the transfer deed backed by a gift on a plain piece of paper.
11. In response to the contentions of Shri Kothari as to how could the Respondent be relying on letters written on plain pieces of paper, on 3 different occasions, Shri Gupta, Authorised Representative for Respondent took the stand that Section 147 of the Companies Act permits a company to use plain paper as official stationery, provided the name and address of registered office of the company are legibly written therein. To this, Shri Kothari states that the issue in not legality of writing significant correspondence on plain paper, but the acceptability thereof as a prima facie evidence. It is not an issue as to whether the Petitioner could have made a request for duplicate shares on a plain paper. As a matter of fact, many small shareholders do. But here, the issue is whether the form and manner of the impugned letters signals a forgery. The managing director of a listed company, writing form his head office with the full support of the company's secretarial staff, and that too, on three distinct occasions, and choosing a plain piece of paper, is certainly bound to raise the antennae of suspicion in anyone's mind. Besides, when it is shown that the same person was writing other letters to the same recipient, very close to the same dates, which used both the official stationery and a markedly different typographical device. On being questioned as to how could the Board of Directors of the Respondent company have approved an issue of duplicate shares on the same day on which the request was made, Shri Gupta chooses to evade an answer as to whether the notice of the Board meeting was given or not, and goes on the legal issue to state that where the notice of the Board is not given in writing, but directors attend the meeting without complaining the lack of notice, and the absenting directors do not object to the same, the meeting is valid. For a minute keeping the legal issue related to notice for board meeting aside, there is nothing ut forward by the Respondent as to what was the urgency in the impugned issue of duplicate shares and the subsequent transfer, that on two occasions, a Board resolution was passed on the same date on which the request for duplicate issue or transfer was made. It is also on record that in the Board of the Respondent nominees of state financial corporation are on it.
12. Having considered the overall scheme of facts leading to the transfer of 3450 shares to Respondent No. 2, we are convinced that the transfer was made at the back of the Petitioner, by using skillfully created signatures to demand duplicate shares first, and thereafter to have them transferred. The transfer was also cleverly structured as a gift without any Deed of Gift, to avoid any need to support it with any financial transaction. If the idea of the Petitioner was really to make any gift to the daughters of the former Executive Director of the Petitioner, there was no reason for the petitioner not do so using the official stationery of the company, getting a Board Resolution passed to affirm the gift, and also have a valid gift deed made. None having been done in this case, we agree that the impugned gift and the resulting transfers are an act of forgery against the Petitioner. That by itself should bring the case to an end. The legal issues related to issue of duplicate shares, stamping of the gift deed, provisions of the Transfer of Property Act etc are not critical anymore, once we hold that the transfer itself was based on a forgery. However, as both the learned Representatives have raised an interesting legal issue in this case, we are inclined to make observations thereon. The issue is whether the impugned gift in the instant case was backed by an "instrument" of gift or it was effected by mere delivery of shares. If the gift was backed by an instrument, the instrument should be stamped according to the Stamp Act. It is a fact that in the instant case, there is no gift deed over and above the letters of 3rd Dec., 1998 which is on plain piece of paper. Shri Kothari argued that he word "instrument" has been defined very widely in the Stamp Act. "Instrument" has been defined in Section 2 (14) of the Stamp Act as including "every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded". Shri Gupta, on the other hand, claims that there was no instrument of gift: the gift was completed by mere delivery. There is no doubt that a gift of movable property can be effected by mere delivery as per Section 123 of the Transfer of Property Act. As long as the donor and the donee agree to make a verbal gift of movable property and they do not apprehend any possible dispute relating thereto, there is no legal requirement for the gift to be backed by an instrument. However, in the real practice, gifts of substantive property are not made orally: they are backed by a Gift Deed to avoid any conflict or controversy in future. For example, in the instant case, the Petitioner company is before the Bench denying having made any gift. So, the Respondent No. 2 has to prove their claim to the impugned shares? Obviously they have to fall back upon the letter of 3rd Dec. to substantiate their claim to be the bona fide transferees. There is nothing besides the letter of 3rd Dec to give them any legal right to the impugned share. As discussed before, there is no Board resolution either. Once it is admitted that the only evidence of the impugned gift is the letter of 3rd Dec., that is an instrument recording the gift, and is therefore, an instrument within the meaning of the Stamp Act. If there was no other gift deed, this letter itself should have been stamped with appropriate stamp duty.
13. In view of our above findings, we direct that -
(a) the Respondent No. 1 to cancel the impugned transfer of 3450 shares to Respondent No. 2 ab initio and restore the said shares to the Petitioner, from the date on which the impugned transfer was made, such that the impugned transfer was never made;
(b) the aforesaid rectification should be carried out within a period of 30 days from the date of receipt of this order;
(c) any monetary benefits accruing to Respondent No. 2 as a result of the impugned transfer, or consequential benefits, shall be deemed to belong to the Petitioner and the Respondent are directed to carry out the same forthwith on receipt of the Order; and
(d) upon carrying out the said rectification, the interim order passed does not have any relevance and is therefore vacated.
The petition is disposed of with the above directions.