Delhi District Court
Sh. Pankaj Kapahi vs Pearl Engineering Polymers Ltd on 1 December, 2012
IN THE COURT OF MS.RICHA PARIHAR, CIVIL JUDGE06 (CENTRAL),
TIS HAZARI COURTS, DELHI
CS no. 858/10/96
Unique Case ID No.02401C0006261998
In the matter of:
Sh. Pankaj Kapahi
R/o B 2B8, Janakpuri,
New Delhi110058 ....... Plaintiff
V/S
1. Pearl Engineering Polymers Ltd.
603, Richit House,
3, Tolstoy Marg,
New Delhi110001.
2. Beetal Financial & Computer Services (P) Ltd.
A1/112,Safdarjung Enclave, New Delhi110029.
3. Securities and Exchange Board of India
Post Bag No. 19972, Nariman Point,
Bombay 400024.
4. Delhi Stock Exchange Association Limited
324/48, Asaf Ali Road, New Delhi110002.
5. Secretary, Ministry of Law Justice & Company Affairs
Department of Company Affairs, Shashtri Bhawan,
New Delhi110001. ........Defendants
DATE OF INSTITUTION : 20/02/1996
DATE OF RESERVING JUDGMENT : 09/11/2012
DATE OF PRONOUNCEMENT : 04/12/2012
Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 1 OF 15
JUDGMENT :
This is suit for Specific Performance and Declaration that act of the defendant no. 1 & 2 tentamount to unfair trade practice in the allotment of shares.
1. Brief facts of the case of plaintiff are that: Plaintiff Sh. Pankaj Kapahi is a non resident Indian and father of plaintiff Dr. N.G. Kapahi is the attorney of plaintiff by virtue of Power of Attorney dated 13/01/1985. Plaintiff applied for ten thousand equity shares of defendant no. 1 company which was advertised in the newspapers inviting applications for the allotment of shares from the public including Non Resident Indians. Vide application no. 0019037 dated 28/06/1994 plaintiff applied for ten thousand equity share of defendant no. 1 company under the NRI quota. plaintiff submitted the application complete in all material particulars. Along with the application plaintiff submitted the requisite consideration of Rs. 1,00,000/ vide cheque no 176785 dated 28/06/1994 drawn on State Bank of India, Main, New Delhi and deposited them in Standard an Chartered Bank, Parliament Street, New Delhi along with duly executed Power of Attorney in favour of Dr. N.G. Kapahi.
Plaintiff was not alloted any share by defendant no. 1 and the application money of Rs. 1,00,000/ was refunded vide refund order no. 75000002 dt. 30/08/1994 by defendant no. 1 and same was deposited and encashed by the plaintiff. In various newspapers defendant no. 1 has advertised about the basis of allotment of shares to the public and NRIs and as per that basis of allotment plaintiff should have got 3,200 shares under the Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 2 OF 15 NRI quota.
Plaintiff wrote registered letter to defendant no. 2 on 29/09/1994 inquiring about the reasons for non allotment of shares to him. Defendant no., 2 vide their letter no. SEC/PEPL/MISC/222/218 dated 06/10/94 replied that the application of plaintiff was rejected as it was found incomplete and no further reasons were given by defendant no. 2.
Plaintiff again requested the defendant no. 2 to give specific reasons for the rejection of the application to which the defendant no. 2 responded by their letter no. SEC/PEPL/MISC/395/382 dated. 22/10/1994 that application was rejected as it was found incomplete and was not considered for allotment. Further, reason was given that "attorney not signed on power of attorney". It was stated by defendant no. 2 that the allotment was finalized in consultation with SEBI nominated public representative ad the Delhi Stock Exchange Association Ltd. Plaintiff again wrote a registered letter dated 27/10/94 to defendant no. 2 stating that rejection on ground that attorney not signed on power of attorney is not explicit enough and sought further clarification in this matter from defendant as the attorney was duly signed by Attorney and there was no mistake on the part of plaintiff Defendant no. 2 replied to the plaintiff on 09/11/1994 that the application was rejected as the Power of Attorney enclosed with the application form did not contain the attested signatures of the Attorney Holder.
Plaintiff at the time of application has submitted the duly certified,executed and attested power of attorney as per the serial no. 7 of the instruction given in the application Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 3 OF 15 form which states that "in case of applications made under Power of Attorney or by Limited Companies or Corporate Bodies or Trust, the relevant power of attorney or relevant authority as the case may be or a duly certified copy thereof must be lodged separately with the Registrar of the issue, simultaneously with the submission of the application form_" hence the reasons given by Registrar of the issue i.e defendant no. 2 for rejecting the application of plaintiff was vague and ambiguous.
Defendant no. 2 who was also Registrar of Himalaya International Ltd., alloted shares of Himalaya International to plaintiff on the basis of same Power of Attorney which was submitted with defendant no. 2 and confirmation in this regard was sent to plaintiff by defendant no. 2 vide their letter no. BIL/HIL/MISC/118 dt. 04/10/1995 . It is unexplainable why this time the same defendant no. 2 i.e. M/S Beetal Financial and computer Pvt. Ltd. rejected the application on the basis of Power of Attorney.
Applicant/plaintiff applied for the shares of defendant no. 1 as the declaration was made in the prospectus under serial no. 6 of the notes which stated that in principle approval form RBI vide their letter dt./ 21/06/93 (as amened on 13/07/.1993) for issuing 40 lakhs equity shares of Rs. 10 each and 56 lakhs equity shares of Rs. 10 each to non residents i.e. MG and AFIC on repatriable basis and also vide letter dated 15/02/1994 for issuing 34,70,000 equity shares of Rs. 10 each to NRI/OCB (under the category of Pvt. Promoters and Public with repatriable benefits have been obtained. Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 4 OF 15 Plaintiff being non resident Indian was entitled to proportional allotment of more than 32000 shares as represented in the application and the prospectus of the company on account of the fact that application was for 10,000 shares and the allotment money of Rs. 1,00,000/ duly paid.
Plaintiff's application was rejected by defendants no. 2 because of sheer negligence on the part of the Registrar of the issue. This was frivolous and illegal rejection of the application without assigning any valid and proper reason.
It is evident from the definition of Registrar to issue as defined by SEBI (Registrars to an issue and Share Transfer Agents) Rules, 1993, that the Registrar is an agent of the Body Corporate as they are acting merely only on their behalf and/or are assisting the body corporate. Therefore the defendant no. 1 is liable for misconduct/negligence/act of commission/omission of its registrar.
Plaintiff asserts that defendant no. 2 did not act as per the schedule 3 of SEBI (Registrars to an issue and Share Transfer Agents) Rules, 1993, which lays down the code of conduct. Wherein it is provided under clause 2 that a Registrar to an issue and Share Transfer Agents shall act with due and care in the conduct the all their activities.
As per the SEBI (Registrars to an issue and Share Transfer Agents) Rules, 1993, chapter 3 under general obligations and responsibilities regulation no. 2B every Registrars of an issue shall also maintained a record of all applications of investors rejected and reasons therefore. In the case of plaintiff the reasons given by defendant no. 1 & 2 are Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 5 OF 15 not valid and proper and are false and wrong.
As per the of SEBI (Registrars to an issue and Share Transfer Agents) Regulation, 1993, chapter V Regulation no. 23 (II) a penalty of suspension of certificates granted to Registrar to an issue or share Transfer Agents may be imposed if, they do not follow the code of conduct specified at schedule 3. In present case, defendant no. 2 was grossly negligent in not only rejecting the application of plaintiff but also responsible for giving wrong and false information of plaintiff as well as other government regulated agencies. Example SEBI, Company Law Board and Delhi Stock Exchange.
In view of the above mentioned statutory provisions it is incumbent upon the Registrar to an issue to act with due skill, diligence and care in the conduct of all their activities failing which the penalty of suspension of certificate may be imposed. In this case defendants no. 2 did not act accordingly and the application was rejected due to gross negligence on his part. Hence, the action of defendants no. 2 is arbitrary.
Plaintiff submits that he applied for those shares for selling them at the best market price and to earn profit out of this transaction. But due to the negligence, illegal and arbitrary rejection of application by defendant no. 2 plaintiff could not earn this profit.
SEBI also took the matter with defendant no. 1 by its complaint no. 95/1/249547/01
(iii) Cat A and the defendant no. 1 gave same vague and ambiguous reply that the application of plaintiff was rejected as power of attorney was not signed. Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 6 OF 15 Department of Company Affairs, Ministry of Law and Justice, Company affairs also wrote letter no. 4/23/95 IPC11 dt. 03/05/1995 to defendant no. 1 on this issue but to them also defendant no. 1 gave same vague and ambiguous reply.
Delhi Stock Exchange vide its letter no. COI/23134/2A dt. 18/10/95 also took this issue with defendant no. 1 and requested them to settle the grievance of plaintiff by 02/11/1995 but defendant no. 1 instead of giving any relief to plaintiff in this matter again gave same vague and ambiguous reply that power of attorney was not filed. That share of defendant no. 1 company quoted in the market around Rs. 32/ after it was listed hence the plaintiff was denied a profit to the extent of Rs. 70,400/ which he would have earned if the defendant had not negligently rejected the application,as the plaintiff was entitled for 3200/ share for defendant no. 1 company under NRI quota. Hence, the plaintiff has filed the present suit praying for following relief from this court:
"Prayer:
(a) Specific Performance thereby direct defendants no. 1 & 2 to specifically perform their part of Agreement by compensating the plaintiff to the extent of market value of the subject shares on the date of when the share were to be issued or on the date of passing of decree which ever is higher;
(b) In case decree of specific performance is declined by this Hon'ble Court then damages to the tune of sum of Rs. 70,400 Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 7 OF 15 (Rs. Seventy Thousand Fourt Hundred only) together with costs, pendentelite and future interest @ 18% per annum from the date of filing of suit till realisation be awarded under section 21 of the Specific Relief Act; and
(c) pass such other and further orders as may be deem fit and proper in the interest of justice."
2. Defendant no. 1 & 2 i.e. Pearl Engineering Polymers Ltd. And Beetal Financial and Computer Services (P) Ltd. were served and filed their Written statement wherein they have taken the preliminary objections that suit has not been duly instituted as Dr. N.G. Kapahi is not duly authorised to file the present suit. Suit is without any cause of action as plaintiff had specifically agreed that rejection by defendant no. 1 and 2 shall not be challenged as such that the plaint is not duly verified. In reply on merits, defendant no. 1 and 2 have denied that Dr. N.G. Kapahi is the duly constituted Attorney of plaintiff or that the suit is validly instituted by a duly authorised person. That the application for shares on behalf of plaintiff was not a proper application and had been rejected . The plaintiff is estopped to challenge the said rejection by the present suit.
The application was not a complete application and all requisite formalities were not completed as it was not accompanied by any duly executed Power of Attorney. It is not denied that plaintiff was not alloted any share by defendant no 1 and application money was refunded to plaintiff. The allotment of shares has been in accordance with the policy Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 8 OF 15 and the rules and regulations and in due consultation and approval of representative of securities and Exchange Board of India and Regional Stock Exchange. As the application of plaintiff was not valid it was rightly rejected and the plaintiff was duly apprised of all the relevant facts and about the rejection of their application. It is denied that application was rejected for any vague and ambiguous reasons. The application was found to be not valid application as the alleged attorney Dr. N.G. Kapahi was never authorised or permitted to purchase shares of new companies and was never authorised to make any fresh application for allotment of shares from a newly floated company. It is denied that there was any violation by the defendants and that defendant no. 2 did not act with due diligence. Thus defendant no. 1 and 2 submits that as there is no cause of action suit of plaintiff is liable to be dismissed.
3. Defendant no. 4 i.e. Delhi Stock Exchange Associates Limited has filed its written statement wherein it has raised the preliminary objections that there is no cause of action n favour of plaintiff and against defendant no. 1. According to plaintiff, he applied for shares to defendant no. 1 & 2 who defaulted in allotment to the shares of the plaintiff. Defendant no. 4 is neither the party to the non allotment or refusal or otherwise in respect of the alleged cause of action. As no relief has been claimed against defendant no. 4 and plaint does not disclose any cause of action against defendant no. 4. that the suit is barred by Section 14 (1) of the Specific Relief Act, 1963 which bars the remedy of specific performance in respect of the contract for non performance of which compensation in Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 9 OF 15 money is an abdicate relief. That the suit is barred by Section 10 of Specific Relief Act and is also bad for misjoinder of defendant no. 4 who is neither a proper nor a necessary party in the present suit and the name of defendant no. 4 is liable to be struck off from the array of defendants. In reply on merits, defendant no. 4 has denied all the averments of the plaint stating that defendant no. 4 was not a party to the said transaction for allotment of shares to plaintiff or refusal thereof and that the plaintiff has no cause of action against defendant no. 4. Hence, the suit of plaintiff is liable to be dismissed.
4. Defendant no. 3 and 5 i.e. Securities and Exchange Board of India and Secretary Ministry of Law have not filed their Written statement and were proceeded exparte vide order dated 01/05/1997.
5. The plaintiff filed replication to the written statement of defendant in which he has denied the contents of written statement and reaffirmed the averments of plaint as correct.
6. On completion of pleadings of parties, following issues were framed on 26/05/99:
(i) Whether the plaint has not been signed and verified and not instituted through duly authorised person? OPD
(ii) Whether the suit is barred by provision under section 14 (1) (a) & Section 10 of Specific Relief Act, 1963? OPD
(iii) Whether the suit is bad for misjoinder of parties/ defendant no. 4 as party? OPD
(iv) Whether the plaintiff is entitled to decree for specific performance against defendant nos. 1 & 2, as prayed for ? OPP Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 10 OF 15
(v) If issue no. 4 is decided in negative, then, whether the plaintiff is entitled to decree for recovery of damages of Rs. 70,400/ against defendants as prayed for? OPP
(vi) If issue no. 5 is decided in affirmative then whether the plaintiff is entitled to any interest on sum of Rs. 70,400/? If so, at what rate and for which period? OPP
(vii) Relief.
6. I have heard the Ld. Counsels for both the parties and carefully perused the records. The suit is filed within limitation and within the jurisdiction of present court.
7. My issue wise findings are as follows: Issue no. (i) Whether the plaint has not been signed and verified and not instituted through duly authorised person? OPD The present suit is filed by the Attorney Holder of plaintiff Sh. N.G. Kapahi the General Power of Attorney is Ex. Pw1/1. Defendant has not led any evidence to prove that said power of attorney is not valid power of attorney hence this issue is decided in favour of plaintiff and against the defendant.
Issue no. (iii) Whether the suit is bad for misjoinder of parties/ defendant no. 4 as party? OPD There is no relief sought by plaintiff against defendant no. 4. Hence, this issue is decided in favour of defendants no. 4 and against plaintiff. Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 11 OF 15 Issue no. (iv) Whether the plaintiff is entitled to decree for specific performance against defendant nos. 1 & 2, as prayed for ? OPP The onus to prove this issue was on plaintiff to discharge its onus plaintiff had led his evidence through PW1 Sh. N.G. Kapahi who is the Attorney of the plaintiff. The suit has been filed by Sh. N.G. Kapahi on behalf of plaintiff vide General Power of Attorney which is Ex. PW1/1. The plaintiff applied for 10,000/ equity shares @ Rs. 10 each for defendant no. 1 company and submitted Power of Attorney which is Ex. PW1/2. Ex. PW1/3 is the acknowledgment slip and Ex. PW1/4 is the allotment intimation/refund dated 30/08/1994. Ex. PW1/5 is the letter of plaintiff to defendant and PW1/8 is the reply of defendant.
The plaintiff in his suit in his prayer clause has sought the relief that defendant no. 1 and 2 be directed to specifically perform their part of agreement by compensating the plaintiff to the extent of market value of the subject shares on the date when the share were to be issued or on the date of passing of the decree whichever is higher.
The Specific Relief Act 1963 deals with the specific performance of contracts. Section 10 of Specific Relief Act provides for the cases in which specific performance of contracts is enforceable. Thus, a prerequisite to seek specific performance of contract is the existence of some contract between the parties.
Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 12 OF 15 As per plaint, plaintiff applied for allotment of shares to defendant no. 1 the said application was rejected by defendant no. 1 and the application money was also refunded to plaintiff which was encashed by plaintiff. Application of plaintiff for allotment of share was thus only an offer which was never accepted by the defendants. Thus, there was no concluded contract between the parties. Plaintiff has not placed on record any agreement/contract per se between plaintiff and defendant no. 1 and 2. In the absence of any concluded contract between the plaintiff and defendant, the question of its specific performance does not arise at all. Thus, this issue is decided against plaintiff and in favour of defendant.
Issue no. (v) If issue no. 4 is decided in negative, then, whether the plaintiff is entitled to decree for recovery of damages of Rs. 70,400/ against defendants as prayed for? OPP Plaintiff is praying for recovery of sum of Rs. 70,400/ with interest as damages on ground that in case application of plaintiff for allotment of shares was not rejected by defendant no. 1 and 2 he would have been entitle to a profit of Rs. 70,400/ as the share of the defendant no. 1 company was quoted around Rs. 32/ after it was listed.
This relief prayed sought by plaintiff is highly speculative and is not calculated on any ascertained parameters. Moreover, there is no concluded contract between the Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 13 OF 15 parties hence this issue is also decided against plaintiff and in favour of defendants. Issue no. (vi) If issue no. 5 is decided in affirmative or whether the plaintiff is entitled to any interest on sum of Rs. 70,400/? If so, at what rate and for which period? OPP As plaintiff is not entitled to recovery of any amount, hence the question of awarding interest also does not arise. Accordingly, this issue is also decided against plaintiff and in favour of defendants.
Issue no. (ii) Whether the suit is barred by provision under section 14 (1) (a) & Section 10 of Specific Relief Act, 1963? OPD In view of findings of the issues no. (iv) and (v), as there is no concluded agreement between the parties the provisions of Specific Relief Act are not attracted. Issue disposed off accordingly.
9. Relief.
In view of my findings on issue no. (iv) and other findings, suit of plaintiff is without any cause of action and plaintiff is not entitled to any relief. Suit of plaintiff stands dismissed.
Parties to bear their own cost.
Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 14 OF 15 Decree sheet be prepared accordingly.
File be consigned to record room as per rules.
th Announced in the open court on this day of 04 December, 2012.
(Richa Parihar) CJ06/Central 04/12/2012 Certified that it contains 15 (fifteen) pages signed by me.
(Richa Parihar) CJ06/Central 04/12/2012 Pnakaj Kapahi vs. Pearl Engineering Polymers Ltd. CS858/10/96 15 OF 15