Company Law Board
Bhuwaneshwar Nath Nigam vs Hindustan Lever Ltd. on 23 January, 2002
Equivalent citations: [2002]111COMPCAS590(CLB)
ORDER
Banerji, Chairman
1. The petitioner who is a shareholder of the respondent company has filed the abovenoted petition under Section 111 of the Companies Act, 1956 ('the Act'), alleging fraudulent transfer of his 500 shares of the respondent-company on the basis of forged transfer deeds without proper procedure having been followed and despite the communication for 'stop transfer' sent to the respondent-company. The petitioner has consequently prayed that the respondent-company be directed to restore the 500 shares to the petitioner or in the alternative, to pay the aggregate value of the subject shares along with interest thereon and also to pay the aggregate dividend on the said shares. Compensation has also been demanded for the harassment caused to the petitioner.
2. Briefly stated, the petitioner's case as set out in the petition is that at the relevant time the petitioner held 2196 shares of the respondent-company and was surprised to receive a copy of a communication dated 26-7-1996 from the respondent-company addressed to one Sunil K. Jain C/o Vardhanan Port Folio (P.) Ltd. verifying the signature of the petitioner from its records, issued in response allegedly, of a letter written by the petitioner. Since the petitioner had not issued any communication to the respondent-company for verification of his signature, he contacted Shri Sunil K. Jain and was informed that some shares belonging to the petitioner had been received for sale. The petitioner vide letter dated 25-8-1996 requested the respondent-company not to transfer any shares belonging to him till further advice and to furnish him the details of the shares held by him to find out the exact number of shares missing from his possession. A letter was also sent to Sunil K. Jain requesting him not to make payment towards the 300 shares received by him for transfer to anybody except the petitioner. Vide letter dated 26-9-1996, the respondent-company furnished a print out of the petitioner's shareholding with them and from the details provided the petitioner was finally able to detect that 500 shares were missing from his possession. The petitioner thereafter wrote several letters to the respondent-company to look into the matter as the shares had been transferred to someone else without obtaining clearance from him. Ultimately vide letter dated 9-12-1996 the respondent-company informed the petitioner that the said 500 shares had already been transferred in favour of various transferees before the company received the communication dated 25-8-1996 from the petitioner stopping transfer, as the transfer deeds were valid in all respects. Photocopy of the transfer deeds were also enclosed. It was apparent from the copies of transfer deeds that the same bore the forged signatures of the petitioner and the attestation of his signatures on the said forms had been got fraudulently attested by a bank in which the petitioner did not have any account. As the respondent-company took no action with regard to the said shares despite several letters and legal notice, the petitioner had no option but to file the present petition for the relief mentioned above.
3. The respondent-company filed a reply to the petition and apart from raising certain preliminary objections regarding the maintainability of the petition also stated that the 500 shares appearing in the schedule of the petition were transferred from the name of the petitioner under valid and duly completed transfer deeds and the shares were already dematerialised and are presently standing in the names of various transferees in the electronic form. It was further stated that 200 shares out of the total 500 shares were transferred between April to June 1996 prior to the communication dated 28-8-1996 stopping the transfer received from the petitioner and the balance 300 were transferred in the month of September, 1996 as the signatures of the transferor tallied with the records of the company and the said signatures were duly attested. The action on the part of the respondent is in accordance with the Circular dated 22-3-1993 issued by Ministry of Law, Justice and Company Affairs, Deptt. of the Company Affairs. Consequently, the petitioner was not entitled to restoration of the said shares as claimed.
4. We have heard the learned counsels for the parties and have perused the pleadings. On behalf of the respondent, two preliminary objections were raised at the outset, namely, that the petition filed under Section 111 was not maintainable as the said section did not apply in case of the respondent which was a public Ltd. company. Secondly, the petition was barred by limitation as the cause of action arose in August/September, 1996 but the petition was filed after about 3 years. So far as the first objection is concerned, on the oral prayer made by the learned counsel for the petitioner we have treated this petition as filed under Section 111 A. As regards the second objection since the petitioner was alleging that his shares have been transferred fraudulently on the basis of forged signature and fraudulent attestation of the same and, thus, was void ab initio, in our view in such a case the period of limitation cannot be strictly applied. We have, therefore, proceeded to hear this petition on merits.
5. The learned counsel for the petitioner has submitted that the stand of the respondent-company that the 500 shares were transferred prior to receipt of petitioner's communication dated 25-8-1996 was totally incorrect as the said 500 shares were found mentioned in the print out of the shareholdings of the petitioner which had been sent by the respondent along with the communication dated 26-9-1996. This clearly means that as on 26-9-1996 the shares stood in the name of the petitioner. That apart in the dividend warrant dated 1-7-1996 the total shares of the petitioner were shown to be 2196 and in the interim dividend warrant dated 4-11-1996 it was shown as 1896. The respondent-company has acted negligently in transferring the shares in question after the petitioner had requested them to stop transfer. Besides the transfers were made without properly verifying the signature of the transferor on the transfer deed with the recorded signatures which clearly shows that the same were not tallied. Attention was also drawn to the communication dated 12-8-1997 from the Manager, Bank of India, Shahdara Branch, which Bank was supposed to have attested the signature of the transferor on the transfer deeds, that the attestation was not done by any officer of the said branch. The instrument of transfer received by the respondent-company, therefore, was an apparent forgery and the same should not have been acted upon. As there was wilful neglect and default on the part of the respondent and the possibility of the involvement of some representative of the respondent-company could not be ruled out, the refusal on the part of the said respondent in not restoring the shares is motivated by illegal consideration and for defeating the rightful claim of the petitioner. Consequently, the reliefs sought in the petition deserve to be granted.
6. On behalf of the respondent it was contended as follows:--
(i) The shares of the respondent-company are listed on various Stock Exchanges. Consequently, it is bound by the Listing Agreement executed with the Stock Exchanges. Clause 12A of the said agreement lays down that if the signature of the transferor is attested by a person authorised by the Deptt. of Company Affairs under Section 108(1A) of the Act, the company shall not refuse to transfer the share on the ground of signature difference. In the present case, the original share certificates along with the transfer deeds executed and the signatures of transferor duly attested by a banker were presented to the respondent-company. Therefore, in accordance with the Listing Agreement as well as the Circular dated 22-3-1993 issued by the Ministry of Law, Justice and Company Affairs, Deptt. of Company Affairs, New Delhi, the respondent-company had transferred the shares in question in the name of the transferees.
(ii) Out of the 500 concerned shares, 200 shares were lodged for transfer between January to May 1996. As there was a slight variation in the signature of the petitioner, although the same was duly attested, the company had by way of abundant caution, sent warning notices in respect of 200 shares to the petitioner. However, no communication/objection was received, consequently the shares were transferred much before the communication dated 25-8-1996 of 'stop' transfer was received by the respondent.
(iii) As regards the balance 300 shares, the same were transferred on the strength of valid transfer deed as the signature tallied with the signatures on record. Therefore, no warning notice was given to the petitioner in respect of the said transfers and the same were valid and in accordance with law and the procedure laid down.
(iv) The respondent company had received an undated letter from the petitioner along with 7 copies of transfer deeds for signature verification with a request to intimate the fact to Sunil Kumar Jain at the address given in the said letter. As the signature tallied the respondent-company sent a reply dated 26-7-1996 to Sunil Kumar Jain confirming the said fact. A copy of the said letter was sent to the petitioner for information. The petitioner is now feigning ignorance regarding the transfer transaction with ulterior motive.
(v) The petitioner has not approached this Board with clean hands. It has not been explained how the shares were missing from his house and how it reached S.K. Jain. Despite knowledge no complaint was lodged with the police regarding the missing shares and on the contrary admittedly the petitioner after discussing with S.K. Jain who was in possession of the missing shares, addressed a letter dated 29-8-1996 to Jain to make payment of the said shares to him only and not to anybody else. This shows that the shares were sold to Sunil Kumar Jain and the transfer deeds in question were executed by the petitioner himself.
7. We have carefully considered the respective submissions made on behalf of the parties. Since strong reliance has been placed by the respondent upon clause 12A of the Listing Agreement, it will be worthwhile to notice the said provision which provides as follows:--
"12 A. (1) The Company agrees that when proper documents are lodged for transfer and there are no material defects in the documents except minor difference in signature of the transferor(s),
(i) then the company will promptly send to the first transferor an intimation of the aforesaid defect in the documents and inform the transferor that, objection, if any, of the transferor supported by valid proof, is not lodged with the company within fifteen days of receipt of the company's letter, then the securities will be transferred.
(ii) if the objection from the transferor with supporting documents is not received within the stipulated period, the company shall transfer the securities provided the company does not suspect fraud or forgery in the matter.
(2) The company agrees that when the signature of transferor(s) is attested by a person authorised by the Department of Company Affairs, under Section 108(1A) of the Companies Act, 1956, then it shall not refuse to transfer the securities on the ground of signature difference unless it has reason to believe that a forgery or fraud is involved."
8. In the facts of the present case, the respondent's letter to the petitioner filed as Annexures A1 to A4 discloses that as there was some minor difference in the signature of the transferor on the transfer deeds pertaining to 200 shares, a warning was issued, as required under Clause 12A(1)(i) of the Listing Agreement. However, the transferor did not respond to the said notice and, therefore, the respondent-company cannot be legally blamed for transferring the said shares in the names of the transferees. That apart the said transfer for 200 shares was effected between April to June 1996 as per the details in paragraph 6 of the respondent's reply, much before the petitioner's communication dated 25-8-1996 was received. So far as the 300 shares were concerned, according to the respondents they did not find any difference in signature and as the shares certificates were accompanied by valid transfer deeds duly stamped and executed on behalf of the transferor as per the provisions of Section 108 of the Act and the signature of the transferor was attested by the proper authority, the respondent-company transferred the same without any further intimation to the petitioner. Therefore, no exception can be taken to the action of the petitioner which was also in accordance with the Circular No. 3/93 (No. 3/4/92 CLC.V) dated 22-3-1993 issued by the Ministry of Law, Justice and Company Affairs, Deptt. of Company Affairs, New Delhi, which laid down that in case the signatures of the transferors did not tally with that on record, the same could be accepted if attested by the authorities mentioned in the circular including the transferors bank. In the present case, all the signatures of the transferor on the 500 shares in question were attested by the bankers. Consequently, the respondent company was legally obliged to transfer the said shares in favour of the transferees as it was not required to verify at that stage whether attestation was genuine. We, therefore, find substance in the submission made on behalf of the respondent, and are unable to accept the submission of the petitioner that the transfer of the 500 shares was improperly and illegally done.
9. That apart we find force in the submissions made on behalf of the respondent that the petitioner has not explained how the shares were missing from his house and why no complaint was lodged to the police after having come to know that the shares in question were missing and were in possession of the broker for the purpose of sale. In the letter dated 29-8-1996 addressed to said Jain the petitioner was wanting that payment for the said shares be made to him only. If these shares had actually been lost, Shri Jain could not have been in possession of these shares and the petitioner would not have asked Shri Jain to make payment only to him. This conduct does create some doubts regarding the bona fide of the petitioner's case.
10. There is another aspect of the matter. In paragraph 6 of the reply filed by the respondents they have mentioned the dates of the lodgement of the shares as well as the date of transfer and the name of the transferees. It also discloses that all the disputed 500 shares had been dematerialised.
That apart the respondent-company has also furnished names and addresses of the concerned transferees including NSDL to the petitioner vide their letter dated 2-4-2001 but despite the same the petitioner has not initiated any steps to implead them as parties to the present proceedings. After dematerialisation of shares, the company has no control over the movement of dematerialised shares which may have changed hands several times over and the identity of the shares has been lost. In the absence of the aforesaid parties as well as the brokers (especially Shri Sunil Kumar Jain) through whom the transaction had taken place, it will not be possible to prove that there was fraud and forgery in the transfer of the said 500 shares. This Board had in the case of Subhash Chandra v. Vardhman Spinning Mills [1994] 13 CLA 385 held that all persons to whom shares were transferred subsequent to the registration should be impleaded as parties before rectification of the register of members or to restore status quo ante could be ordered. As the petitioner has not impleaded the transferees as well as the brokers through whom the transaction had taken place, the petition suffers from a serious defect of non joinder of necessary parties. Besides no effective order can be passed in their absence.
11. For the reasons stated above, the petition deserves to be dismissed and is hereby dismissed. No order as to cost.