Company Law Board
Durga Finance Ltd. vs Rungta Irrigation Ltd. And Ors. on 31 August, 2004
Equivalent citations: [2005]60SCL551(CLB)
ORDER
K.C. Ganjwal, Member
1. M/s Durga Finance Ltd, a Mauritius based Overseas Corporate Body owned by NRIs has filed company petition No. 16/111/99-CLB under Section 111(4) of the Companies Act, 1956. The company has local office at Lajpat Nagar, New Delhi. The list of 85 respondents and their addressees are given in Table A. Respondent No. 1 M/s Rungta Irrigation Ltd and Respondent No. 2 M/s Apex Finance Ltd. are public Limited companies. The respondent No. 3 Vastal Investment Pvt. Ltd is a private limited company. Respondent No. 4 to 84, are individuals and respondent No. 85 is a Reserve Bank of India.
2. The case of the petitioner is that in March, 1995 the petitioner Durga Finance Ltd. purchased 7,54,900(Rupees Seven lakh fifty four thousand and nine hundred) shares of Rungta Irrigation Ltd. (Folio No. D(000101), certificate No. 31328 to 38876 and distinctive numbers 3752701 through 4507600),. during public issue of Rs. 25 crores, under the NRI scheme. Durga Finance Ltd. (DFL) paid Rs. 60 per share for a total payment of Rs. 4,52,94,000.00 (Rupees Four crore fifty two lakh ninety four thousand) to Rungta Irrigation Ltd. (RIL). RIL never delivered the shares to Durga Finance Ltd. Finally, a legal notice was sent to RIL for delivery of shares on 9.12.96 and also complained to SEBI and RBI for help. DFL filed a criminal complaint with Delhi Police on 4.9.98 on the suggestion of SEBI, and the case No. 565/98 has been registered with Police Station, Prasad Nagar, New Delhi under IPC 120D, 420,409,468 and 471 on 30.11.98. The case is being investigated by the Crime Branch of the Delhi Police. Mr. O.P. Tulsyan, Respondent No. 77 and Mr. M.P. Rungta (Respondent No. 81) are at present free on bail. In reply to SEBI, Rungta Irrigation Ltd stated that they had delivered all the shares to Respondent No. 77 Mr. O.P. Tulsyan on 18.12.95 itself based upon an authority letter. The earlier petition before CLB No. 36/113 based upon the statement of RIL was declared not maintainable under Section 113(3) since the shares were rightly or wrongly, transferred and third party interest were created. The relief could be sought only by filing a new petition under Section 111 for rectification of members register. Hence the present petition. Altogether 75 "transferees" claimed to have purchased the shares. The petitioner in his written submissions has stated that it is necessary to bring facts before this Board viz. (1) The authority letter which was used to take delivery of shares has been found to be forged and (2) The two letters written by Mr. Sanjay Rungta on 13.3.1995 and 19.2.96 have been found to be genuine by the Forensic Science Laboratory of the Government . The respondent No. 1 has not questioned or disputed the above two letters. The petitioner also mentioned that the letter of Mr. D.D. Negi Sub Inspector , Crime Branch, Lajpat Nagar, Police Station is simply a summary of Forensic Science Laboratories I opinion. The Original reports of the forensic science laboratory' are part of the judicial file of the above said criminal case. According to the petitioner, these two findings of the Sub Inspector of Crime Branch are important in understanding the background of the petition but should not be confused and the basic theme of the petition. The CLB is legally competent, and the petitioner prayed that tins petition be processed independent of the proceedings in the criminal case.
3. The petitioner further submitted that many rules/regulations/law of the land were violated by the respondent No. 1 by transferring the petitioners share to 75 so called purchasers. The petitioner had purchased Rs. 4.52 crores worth of shares under the NRI scheme approved by RBI. Respondent No. 1 had obtained RBI permission to offer their shares for sale to NRIs . RBI had given permission with certain conditions and one of such condition states that NRI shares will not be transferred to any Indian resident without prior permission of RBI. The violation of any of the conditions included in the RBI permission amounts to violation of Section 49 of FERA 1973. The Respondent No. 1 has admitted that they transferred 5,00,000 shares to Apex Finance Ltd ( Respondent No. 2) and 75,000 shares to Vastal Investment Pvt. Ltd (R-3) on -16.9.98 based on the RBI permission dated 7.9.98. The permission of RBI was valid only if the transfer was made at a price not higher than Rs. 15.25 per shares. The transfer applied for indicated transfer price of Rs. 20 per share and Respondent No. 1 should have returned the transfer applications as RBI permission did not allow transfer at a price higher than Rs. 15.25. The Respondent No. 1 did not reject this transfer and thereby violated the conditions of RBI permission as well as that of FERA. A show cause notice was issued by FERA on 1.10.2001 to the Respondent No. 1 alongwith others. The adjudication of this show cause notice is still pending. The transfer of 5,75,000 shares to R-2 and 3 was made in clear violation of FERA by Respondent No. 1 and is thus liable to be reversed under Section 111A (3) of the Companies Act, 1956.
4. Regarding transfer of 1,79,900 shares in violation of FERA, the respondent has accepted transferring 1,79,900 shares to 73 respondents on 27*9.99 based upon RBI permission, with the petitioner itself had obtained on 17.8.96 from RBI. The petitioner had obtained the RBI permission by applying through their banker, Union Bank of India to sell their shares through the stock market any time within five years of the permission. The petitioner did not know any of the so called purchasers and the permission was not applied for sale to any particular purchaser. RBI granted the permission to sell shares to anyone so long as the sale took place through any recognized stock market of the country. As such the RBI permission was valid so long as the petitioner sold their shares through any stock exchange only. The permission was not valid for any private sale. The petitioner did not give any permission of RBI to anyone to sell its shares as the petitioner had never received the share certificate The petitioner provided a copy of this RBI permission to R-1 with an explanation that the permission was not valid for any "private sale." The Respondents No. 1 , in a bizarre manner, used the RBI permission to transfer to 1,79,900 shares to 73 so called purchasers. The transfer of these shares took place without any RBI permission and in violation of FERA.
5. The petitioner submitted that the third violation is of transfer of 7,54,900 shares to respondent No. 2 to 76 in violation of Section 108B of the Companies Act, 1956. The petitioner, a corporate body owned slightly more than 10% equity of Respondent No. 1 , when it acquired 7,54,900 shares by investing Rs. 4.52 crore in the public issue of the R-1. The petitioner was thus a dominant "corporate shareholder" and therefore transfer of 7,54,900 shares were in clear violation of Section 108B of the Companies Act, which stated that before transferring one or more of such shares of body corporate holding 10% or more shares, give to the Central Govt. an intimation of its proposal to transfer such shares and every such intimation shall include a statement as to the particulars of the shares proposed to be transferred. This was not done by Respondent No. 1 which is clear violation of Section 108B of the Companies Act, 1956.
6. The petitioner has also submitted that in violation of Rule 40A of the listing regulation of the stock exchange, Respondent No. 2 was transferred 5,00,000 shares comprising more than 5% of the total paid up capital of Respondent No. 1 to Apex Finance Limited (Respondent No. 2) adhering to the provisions of Rule 40A. The petitioner has also stated in his written submissions that there is existing relationship between Respondent No. 1 and Respondent No. 2 and thereby Respondent No. 1 purchased his own 5,00,000 shares through its subsidiary which is a violation of Section 372 of the Companies Act, 1956 and also that of SEBI.
7. The petitioner further submits that in reply to the Respondent No. 1 averments that the petition is hopelessly time barred. The petitioner was provided full details of alleged transfer of shares by Respondent No. 1 only on 9.10.1999 as part of their additional affidavit filed with CLB in connection the previous petition CP No. 36/113 of 1998. He has filed the petition with the time limit of two months on 15.11.1999 itself. The petitioner prays that all the replies filed by all the respondents are liable to be rejected because of their late submission.
8. The petitioner has further submitted that the letter written by SEBI to Crime Branch, Lajpat Nagar, New Delhi clearly indicates that the share certificates have not been sent by Regd. Post though as per Ministry of Finance Circular shares should have been sent by Regd. Post only. The entirety of the case involves various issues such as Criminal Aspect which is being investigated by the Police, ethical behavior of a Chartered Account (R-77) which is being looked into by Institute of Chartered Accountants of India, FERA violation being looked into by the Enforcement Directorate and the present petition filed by the petitioner before this Board. The petitioner has submitted that the outcome of the Police Criminal case and the FERA show cause notice may grind slowly. If the present petition is dismissed ; with expectation that it can be filed later after the outcome of Police and FERA cases, the statute of limitation may prevent the petitioner to file the petition again and thereby permanently denying the justice to him. In summing up, the petitioner states that the issue of criminal violation is not central to the present petition. The respondent has transferred 7,54,900, shares of the petitioner in blatant violation of many laws, regulations of the land at the relevant time and these transfers are liable to be set aside under Section 111A(3) of the Companies Act, 1956 by ratification of members list in which some names have been inserted in violation of existing laws.
9. The learned counsel for respondent have submitted that the present petition is not maintainable under Section 111A of the Companies Act, 1956 as Section 111A(3) specifies that the rectification of register of members is made within two months from the date of transfer of any shares or from the date on which the instruction to transfer was delivered to the company. The petition is hopelessly time barred as the transfer of shares was in the knowledge of the petitioner from the year 1997 whereas the present petition has been filed in 1999.
10. The learned counsel for respondent further submitted that the entire case of the petitioner is leased on the averments that Mrs. Parwati Agarwal, a director of the petitioner company has not written any letter dated 23.11.1995 informing Mr. M.P. Rungta, Vice Chairman of the respondent company that she is not able to come to take delivery of 7,54, 900 shares of the respondent company allotted to the petitioner company and that these shares be handed over to Mr. O.P. Tulsyan on behalf of the petitioner company. The case of the : petitioner is that the said letter bearing the signatures of Mrs. Parwati Agarwal is forged and signature are not of her. It is also alleged that on the basis of said forged letters, the shares were handed over to Mr. O.P. Tulsyan, who in turn alongwith blank transfer deeds signed by Mrs. Parwati Agarwal transferred the shares to the respondent No. 2 to 76. The respondents have recently brought out two letters dated 13.3.1995 and 6.2.1995 which were produced before the Board, allegedly written by Mr. Sanjay Rungta .to petitioner company, Mumbai and Mr. O.P. Tulsyan at Varanasi UP to prove that the shares were fraudulently transferred from the petitioner to respondents No. 2 to 76. The transfer being fraudulent be cancelled and registered of members be rectified. The Learned Counsel for respondent submitted that all these averments are not only- false but are completely unsustainable and the letter dated 23.11.95 was written by Mrs. Parwati Agarwal to Rungta Irrigation authorising Mr. O.P. Tulsyan to take delivery of 7,54,900 shares.. Shri Tulsyan gave this letter dated 9.12.95 to M/s. Rungta Irrigation Ltd.(respondent company), that he has been authorized to take delivery of shares. Accordingly, the respondent company acting in a bonafide manner handed over share certificates relating to 7,54,900 shares against valid receipts dated 18.12.95. It is also the case of the petitioner that letters dated 13.3.96 and 19.2.96 are fabricated by Mr. Mangi Lal Agarwal in collusion with an ex-employee of Respondent No. 1 company who gave him for consideration of huge amount, certain signed letter heads of the respondent company, which were lying unused after the public issue of die respondent company. All die voluminous evidence is being lead and various witnesses namely, Mr. Mangi Lal Agarwal, Mrs. Agarwal, Mr. O.P. Tulsyan, Mr. Sanjay Rungta and others are being examined. Unless this process is completed and court verdict is reached, the truth cannot be known. The criminal case is already on trial before learned ACMM, Tis Hazari Court, Delhi bearing case No. 565/98 between die parties to the present petition and die case is at the stage of arguments and framing charges. The detailed evidence is being lead before criminal court. No evidence of such elaborate nature, can be lead before this Board in summary jurisdiction and hence, rectification of Register of Members cannot be directed unless, the document as alleged to be forged and fabricated by both the parties is decided by a court of competent criminal jurisdiction. The petitioner has already chosen the remedy before die court of criminal jurisdiction and any order by this Board will affect the rights of the parties in defending criminal case.
11. The petitioner has also alleged that the transfer deeds duly signed by Mrs. Parwati Agarwal, die director of the company and authorized signatory and stamped with the stamp of "Durga Finance Ltd" was fraudulently used by respondent company which she has had signed and given for some other transactions and not to transfer the shares in question. It is submitted that the plea of fraud is only an after thought as no reasons have been given as to why blank transfer deeds signed and given to the respondent company by Mrs. Parwati Agarwal. The deals signed by Mrs. Parwati Agarwal and her, signatures arc not denied but admitted as correct. Mr. O.P. Tulsyan is well known to Mr. Mangilal Agarwal and Mrs. Parwati Agarwal and plea of fraud and forgery is against these two persons but the respondent company has been blamed for transactions. Evidence in detail is being furnished before the court of criminal jurisdiction that the fraud is played by Mr. Mangi Lal Agarwal and not by the respondent company. The issue cannot be decided in summary jurisdiction by this Board at this stage.
12. The learned counsel for respondent submitted that the permission of RBI for transfer of 5,75,000 shares was received on 7.9.98 and shares were finally transferred on 16.9.98. It was subsequently noticed by the company that general permission existed from 17.8.96 and it was withheld wrongfully by the petitioner and 1,79,900 shares were also transferred on 27.9.99. Both the RBI approvals dated 17.8.96 and 7.9.98 have been placed on record.
13. The petitioner has been engaged in forum shopping and he has lodged complaints with various authorities including SEBI, Delhi Stock Exchange, Institute of Chartered Accountant of India, RBI and local police. All transfers of shares have been made by the respondent company in compliance with Section 108 of the Companies Act, 1956. The petitioner is misusing his non-resident status and no case is made out for any violation, of law except a general false allegation of fraud, forgery etc for which a trial is pending before the court of competent criminal jurisdiction. The petitioner cannot pre judge in this petition and no case is made out for interference by this board under Section 111A of the Companies Act, 1956. The respondents have relied on following case laws:-
i. National Insurance Co. Ltd. v. Glaxco India Ltd. v. Glaxo India Ltd. (1999(98) Companies Act, 1956. Cases 378) ii. Smt. Anuratha v. AKMN Cylinders Pvt. Ltd. (1999(95) Comp. Cas 554) iii. Smt. Kamla Devi Manti v. Grasim Industries Ltd. (2001(103) Companies Act, 1956. Cas. 835) iv. Tarsen Kansie v. Dev Spinners Ltd. (2001 (103) Comp. Case 835) v. Bipin K. Jain v. Raj Kumar B. Jain (1998(91) Comp. Case. 835) vi. Ammonia Supply Corporation Pvt. Ltd. v. Modern Plastic Containers P. Ltd. (1994(79) Comp. Cas 163) vii. Joginder Singh v. Baswa Singh (1985(58) Comp. Cas 843) viii. Daddy S. Mazda v. K.K. Irani (1977 (47) Comp. Cas 39) ix. Punjab Distilling Industries Ltd. v. Blermas Paper Coating Mills Ltd. (1973(43) comp. Case 189)
14. In the all above cases relied by the respondents, it is held that the object of the provisions under the Companies Act is to provide a summary remedy in non-controversial matters or in matter where a quick decision may be necessary to obviate any irreparable injury to the party. Where serious disputes are involved, the proper forum for this adjudication is a Civil Court (Shri Kamla Devi Mantri v. Grasim Industries Ltd. and Anr.). In the case of National Insurance Co. Ltd. v. Glaxco India Ltd. it is held that it is the company court which would be the court of exclusive jurisdiction in so far as rectification of the register of members of a company is concerned. However, if issues arise, whether the applicant is the owner of the shares; whether there is fraud or forgery in holding the shares or the very title to the shares, then such issues will be beyond the jurisdiction of the company court and will have to be decided by the civil court. Similarly, in the case of Tarsen Kansal v. Deb Spinners Ltd. it was held by this Board that in petition seeking rectification of the register of members, the facts of each case have to be examined to see whether the application is for rectification or something else. If it is for rectification, all matters in that connection should be decided by this Board and it finds adjudication of any matter not falling under it, it may direct a party to get his rights adjudicated by a civil court on the facts, that there were serious allegations of forgery, fraud, collusion, manipulation and misrepresentation. Again in the case of Bipin K. Jain v. Savik Vijay Engg. Pvt. Ltd. and Ors. this Board has held that if complicated question of law of facts arise in a Section 111 petition which cannot be adjudicated on the basis of documents made available , but could be decided only on trial by evidence, the Company Law Board would relegate the matter to a suit. In the case of Ammonia Supply Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd. and Ors., the Delhi High Court has held that the object of Section 155 of the Companies Act, 1956 is to provide a remedy in non controversial matters or in the matters where a quick decision is necessary and can be rendered in order to obviate irreparable injury to a party. Section 155 is ordinarily not intended for settling controversies necessitating a regular investigation and in such cases the Company Court can decline to entertain petitions in exercise of its discretionary powers and say that since serious disputes are involved, the proper forum for their adjudication is a Civil Court. Similarly in the case ofJoginder Singh v. Basawa Singh and Ors., the Division Bench of Punjab and Haryana Court has held that for the matters falling under the purview of Section 155 of the Companies Act, 12956 the jurisdiction of the Civil Court is not barred. There are no words either in Section 155 or in some other provision of the Companies Act which can lead to an inference that the Civil Courts' jurisdiction is barred. The scope of enquiry under Section 155 is of a summary nature and the company court may refuse and decline to grant the discretionary relief where serious disputes and complicated questions are involved. In the case of Daddy S. Mazda v. K.K. Rani it is held that serious charges of fraud, forgery impersonation and falsification where serious disputed question of facts were involved in an application under Section 155 of the Companies Act, 1956, it was not open to the company court to make an order for rectification without taking evidence on the disputed questions of fact or without relegating the parties to a suit. In the case ofPunjab Distilling Industries Ltd. v. Biermas Paper Coating Mills, the Delhi High Court has held that the Tribunal rightly held that the court could not be justified in entertaining the petition for rectification under Section 155 of the Companies Act, 1956 on the ground of partial failure of consideration when it was bound to raise complicated questions of fact which would have to be resolved on technical experts opinion which could have to be subjected to cross examination. The Company Law Board in the judgment ofSmt. S. Anuratha v. AKMN Cylinders Pvt. Ltd. and Anr. It was held that the contentious issues raised by the parties regarding fraudulent manipulation of the duplicate share certificates, fabrication of the transfer instruments and other records could not be resolved in summary proceedings by the Company Law Board. The Company Law Board could not go into the question whether the agreement dated November 16, 1995, became in frucruous in Section 111 proceedings which could be agitated only in a civil suit.
15. I have considered the pleadings and the arguments of both the parties including their written submissions. The entire case of the petitioner enumerates from the letter dated 23.11.95 alleged to have been written by Mrs. Parwati Agarwal, a Director of the petitioner company informing Mr. Rungta Vice Chairman of the respondent company that she is not able to come to take delivery of 7,54,900 shares of the respondent company allotted to the petitioner company and the same he handed over to Mr. O.P. Tulsyan on behalf of the petitioner company. The petitioner submitted that the said letter bearing the signature of Mrs. Parwati Agarwal is forged and Mr. O.P. Tulsyan got the possession of the shares on the authority of this forged letter from the respondent company with their connivance. The petitioner has also placed on record two letters dated 13.3.95 and 19.2.96 purported to have been written by Sanjay Rungta, Managing Director to the petitioner as well as to Mr. O.P. Tulsyan at Varanasi, to prove that shares were fraudulently transferred from the petitioner to Respondents No. 2 to 76. The petitioner has submitted that the two letters of Mr. Sanjay Rungta on 13.3.95 and 19.2.96 have been found to be genuine by the forensic science laboratory of the Government. Accordingly, the transfer of shares being fraudulent be cancelled and register of members be rectified.
16. It is observed that the petitioner has already filed a criminal complaint to Delhi Police on 4.9.98 and the case No. 565/98 registered with Police Station, Prasad Nagar, New Delhi on 30.11.98 is being investigated by the crime Branch of Delhi Police. The case is pending trial before learned ACMM, Tis Hazari, New Delhi.. The outcome of the criminal is yet to be known.
17. The petitioner during arguments accepted that about 500 blank transfer deed signed by Mrs. Parwati had been handed over to Mr. O.P. Tulsyan who was instrumental to get these shares to the "petitioner. In fact, Shri Tulsyan was a link between the petitioner and the respondent company. The petitioner submitted that inspite of the shares handed over by the respondent company to Mr. Tulsyan on the forged letter dated 23.11.95 written by Mrs. Parwati Agrawal, as well as 500 blank transfer deed forms given to Mr. Tulsyan, the respondent company has violated many other rules/regulations/law of the land by transferring the petitioners shares to 75 so called purchasers. The petitioner has purchased shares under NRI scheme approved by RBI and the permission of RBI was with certain conditions. One of such condition of RBI states that NRI shares will not be transferred to any Indian resident without prior permission of RBI. As the shares have been transferred without RBI permission, it amounts to violation of Section 49 of FERA, 1973. The petitioner has also submitted that 7,54,900 shares were transferred in violation of Section 108B of Companies Act, 1956 without giving information to the Central Government. The petitioner, a corporate body did own slightly more than 10% equity of respondent No. 1 . The petitioner was thus a "dominant corporate shareholder" and therefore transfer of shares were in clear violation of Section 108B of the Companies Act, 1956. The petitioner has also referred to the violation of Rule 40A of the listing regulation of the Stock Exchange as 5,00,000 shares comprising more than 5% of the total were transferred to Apex Finance Limited (respondent No. 2). The petitioner has also submitted that the share certificates should have been sent by Regd. Post only as per Circular of Ministry of Finance. The petitioner has argued that he filed the petition within the time limit of two months on 15.11.99. After the petitioner was provided full details of transfer of shares as part of additional affidavit of respondent filed on 9.10.99. The petitioner also submitted that if the present petition was not decided and he is to wait for the outcome of the pending criminal case as well as FERA investigations, which may take time, the petitioner may be prevented by the statute of limitation to file the petition again and thereby permanently denying the justice to him.
18. The respondents in their reply have stated the petition is hopelessly time barred as the shares were transferred with the knowledge of petitioner from 1997 whereas the petition has been filed in year 1999. The transfer deeds signed by Mrs. Parwati Agarwal, the Director of the company and the authorized signatory and stamped with the stamp of Durga Finance Ltd. alongwith shares were handed over to the respondent company and they rightly transferred the shares in compliance with Section 108 of the Companies Act, 1956. The respondents have also stated that permission of RBI for transfer of these shares was taken which have been placed on record. On the contrary, the petitioner has been engaged in forum shopping as he has lodged complaint with various authorities including SEBI, Delhi police, RBI, Delhi Stock Exchange and Institute of Chartered Accountant of India. The respondents have relied on above said various case laws wherein it is held that the object of the provisions under the Companies Act is to provide a summary remedy in non-controversial matters. Where there are serious allegations of forgery/fraud/collusion/manipulation and misrepresentation, the matter should be adjudicated by a civil court.
19. I am inclined to accept the arguments advanced by the respondents that the criminal case as well as cases filed by the petitioner before various authorities like RBI, SEBI etc are pending. Until the decision of the court in the criminal case is known, it will be pre-mature to intervene at this stage. One cannot prejudge the outcome of the investigation of various statutory authorities, before whom the petitioner has filed his complaints. There are serious allegations "of forgery, fraud and collusion etc in this case which cannot be decided by this Board and are being adjudicated in a Competent Court of criminal jurisdiction. Accordingly, the present petition is dismissed with liberty to the petitioner to approach tin's Board, if he so desires, after the final outcome of the criminal and other cases pending before the Court and other authorities.
20. With the above directions, the petition is disposed of There are no orders as to the cost.