Bombay High Court
Samir Sett vs The Custodian on 12 July, 2019
Author: A.K. Menon
Bench: A.K. Menon
spma-15-2019
rrpillai IN THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO
TRANSACTIONS IN SECURITIES) ACT, 1992
MISCELLANEOUS APPLICATION NO. 15 OF 2019
Samir Sett ... Applicant
vs.
1. The Custodian ... Respondents
2. Reliance Petrochemicals Ltd.
Surat, Hazira Road, Gujarat
3. Karvy Computershare Private Ltd.
Madhapur, Hyderabad-500 081
4. Reliance Industries Ltd
Nariman Point, Mumbai
5. Late Harshad S. Mehta
Legal Heirs
(i) Smt Rasila S. Mehta
(ii) Smt Jyoti H. Mehta
(iii) Mr. Aatur H. Mehta
6. Mr. Hitesh Shantilal Mehta
6(a) Ms. Pratima Hitesh Mehta
7. Mr. Ashwin S. Mehta
8. Religare Securities Limited
9. Jhawar & Co,
The Calcutta Stock Exchange Association Ltd.
Kolkata - 700 001
10. The Calcutta Stock Exchange Association Ltd.
7, Lyons Range, Kolkata-700 001
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None for the Applicant.
Mr. Gandhar Raikar a/w. Ms. Shilpa Bhate i/b, Leena Adhvaryu & Associates
for the Custodian.
Mr. Ashwin Mehta a/w. Mr. Sanjay Naukudkar for the notified party.
CORAM : A.K. MENON, J.
Judge, Special Court Date : 12 th JULY, 2019 P.C. :
1. In this application the applicant who is an individual claims to have purchased 1600 shares of Reliance Petrochemicals Ltd under 16 share certificates particulars of which are given in paragraph 1. He contends that the shares were purchased under different contract notes/bills from Jhawar & Co, Stock Brokers members of the Calcutta Stock Exchange. Vide letter dated 2nd January, 2015 addressed to the Office of the Custodian and Officer on Special Duty of this Court, the applicant enclosed an application for lifting attachment of the aforesaid shares. He sought a declaration that he is a bonafide purchaser and direction again to the Custodian to release shares and all accruals thereon. In response, the Officer on Special Duty vide a letter dated 12th January, 2015 informed him of the basic requirements that such an application must comply with. It is pursuant to that communication that the present application has been filed.
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2. Although the Miscellaneous application seeks release of shares of Reliance Petrochemicals Limited (RPL) it appears that these shares are no longer available in view of the company having merged with Reliance Industries Limited (RIL). The Custodian has filed a certification report dated 6th June, 2019 which contains various annexures in relation to those attached shares.
3. On behalf of Mr. Hitesh Mehta - respondent no. 6, Mr. Ashwin Mehta opposed the certification application. At the hearing of this application Mr. Raikar on behalf of the Custodian informed me that the applicant has addressed a letter to the Office of the Custodian stating that he will not be attending the hearing since he has complied with all requirements. He had earlier sought adjournment vide email dated 2 nd April, 2019 to comply with certain requirements. Now that he has complied with all requirements he would not be in a position to attend. In other words he has submitted to orders of the Court. Copy of the email has been produced before me today.
4. In that view of the matter before considering compliance with provisions I though it appropriate to consider Mr. Mehta's objections. Mr. Mehta submitted that the shares when they were produced were in physical form. However later they were required to be dematerialised. Once dematerialised they lost their individual identity such as Share distinctive 3/13 spma-15-2019 numbers, the base certificate number(s) and the common folio number. He therefore submitted that co-relating any accruals on those shares to make out a trail is not possible. The Custodian cannot correlate the accruals such as bonus shares or rights issues or even the dividend with the original shares holding that since dematerialisation process commenced all shares would go into a common pool.
5. According to Mr. Mehta in the present case the shares of RPL upon merger also resulted in multiple shares of different entities being issued as set out in the certification report itself. All these shares he submitted were in dematerialised form and therefore accruals could not be traced to the original shares.
6. Mr. Mehta further submitted that large number of shares have been sold by the Custodian between 10 th February, 1995 and 21st September, 2017. The total number of shares sold between these dates is 2,83,704. He submitted with reference to table at Exhibit A to the affidavit of Mr. Hitesh Mehta that between 10th February 1995 and 23rd May, 1995 49,900 shares of Reliance had been sold at different prices all of which were in physical form. Even thereafter 54,168 shares have been sold as of 7 th April, 2003. He therefore submitted that the shares forming subject matter of this application also may have been sold. The price at which they were sold varies from time 4/13 spma-15-2019 to time and the sales were arbitrary and therefore the price obtained was also different. Mr. Mehta submitted that it is not possible for the Custodian today to state with certainty that the amounts, if any, payable to the applicant would match the applicant's entitlement, if any. All would depend on the date of sale and the price at which the shares were sold.
7. Mr. Mehta's next submission was to the effect that when the shares were sold in bulk such as in the instant case, it may be possible that the shares now claimed by the applicant may have been sold. If that be so it was not possible to decide which of the shares had been sold and at what price. Unless this was ascertained it would not be proper for the Custodian to pay over to the applicant price of 1600 shares or the price of the shares and the accruals thereof. He therefore submitted that the attempt of the Custodian's certification of the shares in the present case is flawed.
8. In fairness Mr. Mehta submitted that he is not opposed in principle to the certification of shares in any particular case including those under the present application. The only quarrel was to the manner in which the said certification had been carried out and no specific norms were being followed by the Custodian. The process was haphazard and Custodian was not following any uniform standard. He therefore submitted that the process being flawed he was entitled to bring this to the attention of the Court with a 5/13 spma-15-2019 view to ensure that in undeserving cases certification was not approved by the Court.
9. The next objection canvassed by Mr. Mehta is that RPL does not exist today and the shares certification of which has now been sought could not be identified from the common pool since they were in dematerialised form and dematerialised shares have been sold only after 7 th April, 2003 upto 21st September, 2017. That since the subject shares or some of them may have been be sold the Custodian would have had to receive the shares of RIL and all the other entities upon surrender of the physical share certificates. Mr. Mehta submitted that the Custodian had not placed on record particulars of when exactly replacement shares of RPL were received which would enable a specific verification as to whether shares in question were still existing or already been sold in tranches on 7 th April, 2003 or thereafter. It is therefore submitted that the application may not be allowed unless this aspect was ascertained.
10. Mr. Raikar pointed out that the objections canvassed by Mr. Mehta were not sustainable. The shares in the present case had not been sold at all. These were shares in physical form which were surrendered and replacement shares were received. He submitted that all these aspects had been considered by the Custodian prior to making the certification report. He invited my 6/13 spma-15-2019 attention to paragraph 9 to 15 of the report and submitted that all shares, certification of which has now been sought, are accounted for and all aspects have been considered by the Custodian prior to recommending certification. Mr. Raikar therefore submitted that the objections need not prevent certification of these shares.
11. I have heard the parties at length and with their assistance have perused the application, its annexures, the certification report and its annexures and I am of the opinion that this application deserves to be allowed. The applicant has on his part annexed copies of the individual shares certificates, contract notes termed as bills, Exhibit A onwards including certified copies of the share transfer forms of RPL purchased from the notified party and his wife Dr. Hitesh Shantilal Mehta and Dr. Pratima Hitesh Mehta through the Calcultta Stock Exchange. The forms are duly completed. The delivery brokers are seen to be Ashwin Mehta, Kamal Kumar Kejriwal & Co and Jhawar & Co of Calcutta in all these cases. The last of the brokers is the member of the Calcutta Stock Exchange through whom these shares have been purchased. All the particulars have been entered in the share transfer forms and the bills issued by Jhawar & Co.
12. In addition the applicant had provided list of dates on which the shares were acquired along with certificate numbers, distinctive numbers and 7/13 spma-15-2019 folio numbers, co-relating the individual bills to the 1600 shares. Further, all the criteria and the tests to be followed in the usual format and required to be scrutinised have been verified as seen from paragraph 9(a). These were covered under four bills as submitted in paragraph 9(c), proof of payment has also been submitted as seen from paragraph 9(d). The Custodian has also certified that proof of delivery in Stock Exchange has also been submitted.
13. Paragraph 11 of the report reveals that RPL merged with RIL during the year 1992 and thereafter RIL issues shares in lieu of those of RPL in the ratio of 1: 10. Thus for every 10 shares of RPL shareholders were given one equity shares of RIL. The 1600 shares of RPL thus translated to 160 base shares of RIL. RIL then issued bonus shares in the ratio of 1 : 1 in the year 1997, 2009 and 2017. The 160 base shares would therefore become 320 shares in 1997, 640 shares in 2009 and 1280 shares in 2017. In paragraph 11(b) the Custodian has stated that 150 bonus shares were issued to the applicant in the year 1997 and 300 in the year 2009 to the applicant.
14. Reference is made to the orders dated 18 th July, 2014 and 30th July, 2014 passed in MA/37/2017. That application was filed by the Custodian against RIL, M/s. Karvy Computershare Pvt. Ltd , Smt. Jyoti Harshad Mehta and all other family members and entities including Dr. Hitesh Shantilal Mehta and Dr Pratima Hitesh Mehta and several other notified parties. In this 8/13 spma-15-2019 application the Custodian sought a direction against RIL to issue 3,10,538 duplicate shares which were in the names of the Custodian Account - notified party as detailed in Exhibit I to that application.
15. In the course of hearing this application I have called for the original record of MA/37/2014 and have verified the fact that Exhibit I dealt with shares of RIL standing in the name of Dr. Hitesh Shantilal Mehta and Dr. Pratima Hitesh Mehta under six different folios. By order dated 18 th July, 2014 the application was allowed by consent. Thus duplicate shares were directed to be issued. They were deposited with the Custodian Account notified party. There was no opposition whatsoever at that stage. Subsequently in an order dated 24th July, 2015 the issue of ownership of these shares were kept open since Custodian was required to comply with the rules and procedure including those under the Companies Act. The subject matter of the application MA/37/2017 was issue of duplicate shares. Duplicate shares have since been issued and that is how in the present case150 shares out of 160 were received by the Custodian since they were not traceable.
16. As far as the 10 other shares were concerned those did not form part of the application for issue of duplicate shares. Thus in paragraph 11(d) it was stated that the shares including bonus shares had been since dematerialised. That 150 base shares had been dematerialised on 16 th 9/13 spma-15-2019 January, 2017 under Client ID in the name of the Custodian account Dr. Hitesh Mehta and Dr. Pratima Mehta. Furthermore 150 bonus shares declared during 1997 - 2009 were also dematerialised on or about 4 th March, 2011 in the same names and kept in the same depository participant viz. Stock Holding Corporation of India Limited. Meanwhile the 10 base shares continued to be held in physical form. Paragraph 12(a) of the certification report reveals later RIL as part of the scheme of demerging issued shares of four other companies namely Reliance Communication Limited, Reliance Capital Limited, Reliance Infrastructure Limited, Reliance Power Limited and Reliance Home Finance Limited. In the course of time these shares also were merged with other companies as set out in paragraph 12(b) to 12(e).
17. Considering the overall picture it is submitted that in paragraph 13 that the total dividend amounting to Rs. Rs.84,921/-is now payable in respect of these shares (present 150 shares). In paragraph 14 of the report Custodian has given a break up of the shares now required to be certified which includes shares of RIL which are 1200 in number. Shares of Reliance Communications Limited, Reliance Capital Limited, Reliance Infrastructure Limited, Reliance Power Limited and Reliance Home Finance Limited totalled to 427 shares. Likewise in relation to the 10 shares, reference is made in paragraph 15. These shares have since multiplied to 80 in number. In 10/13 spma-15-2019 respect of the number of shares held in de-merged entities, dividend amounts to Rs.5,304/-. The below table provides a clear picture of the shareholding and accruals :
Name of the Company No. of shares No. of shares Total
dematerialised dematerialised
Shares of M/s. Reliance Industries 150 10 160
Limited issued in lieu of 100 shares
of M/s. Reliance Petrochemicals
Limited
Bonus shares issued in 1997 150 10 160
Bonus Shares issued in 2009 300 20 320
Bonus shares issued in 2017 600 40 640
Total Shares of M/s. Reliance 1200 80 1280
Industries Limited
Shares of Resultant Companies
issued in 2006
Reliance Communication Limited 300 20 320
Reliance Capital Limited 15 01 16
Reliance Infrastructure Limited 22 01 23
Reliance Power Limited 75 05 80
Reliance Home Finance Limited 15 01 16
Total shares 427 108 535
Dividend Amount on 150 base Rs.79,617/- Rs.5304/- Rs.84,921/-
shares (1993-94 to 2017-18)
These shares are now not in physical form and it is evident from the record that these shares have not been sold.
18. In the case of Varghese K. Joseph vs. The Custodian and Ors. the Supreme Court was concerned with a statutory appeal under Section 10 11/13 spma-15-2019 challenging summary rejection of an application for certification of shares received after the cut off date of 27 th August, 2005. The question which the Supreme Court considered whether the Special Court was right in rejecting an investor's application on the ground of delay and as being beyond cut off date. That case concerned 100 equity shares of RIL. That applicant approached the company which informed the applicant that the shares were tainted. An application was made for certification in 2005. The last date for certification was 27th June, 2005 whereas he has approached the Court on 27th August, 2005 i.e. after cut off date. He was not aware of the cut off date on 27th August, 2005. The Court observed that the application was beyond time. The Court considered the various aspects. The fact that the public notice has been issued in 32 daily publication providing 60 days to approach the Custodian for certification. The applicant in that case was abroad for large part of the time and submitted that the cut-off date could not be of statutory nature.
19. Considering the salutary objects and reasons of the Act and particularly the need for speedy recovery of amounts involved, the Court observed that it is duty of the Custodian and the Special Court to take into consideration the situation, that the cut off date could have been observed and parties had been prevented to approach the Custodian or the Special Court before the cut-off date. The delay in that case is over two months and the 12/13 spma-15-2019 Supreme Court observed that the Special Court could have certainly considered the circumstances in view of the that fact that the applicant was a bonafide purchaser. The Court also observed that the rejection was only based on a theory of convenience of the Custodian, while ignoring the ramifications thereof to a bonafide customer. In that view of the matter the court was of the opinion there is no statutory limit to apply. This principle is equally applicable to the present case mainly because the application is being urged beyond the cut off date, if otherwise bonafide, sufficient ground is made out.
20. Considering all the aforesaid I am satisfied of the bonafides of this applicant. I therefore pass the following order in conclusion :
(i) The application is allowed in terms of prayer clause(a).
(ii) As a consequence the shares of Reliance Communications Limited, Reliance Capital Limited, Reliance Infrastructure Limited, Reliance Power Limited and Reliance Home finance Limited as seen in the table in paragraph 17 stand certified.
(iii) Amount of accrued dividend of these shares shall also be paid over.
(iv) Application disposed of in the above terms.
(A.K. MENON, J.)
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Digitally signed by
Rajeshwari Rajeshwari R. Pillai
R. Pillai Date: 2019.07.12
17:29:50 +0530