Company Law Board
Mani Credit Capital Pvt. Ltd., Mrs. ... vs Reliance Industries Limited, Mumbai, ... on 31 October, 2001
Equivalent citations: [2002]111COMPCAS808(CLB)
ORDER
C.R. Das, Member
1. By the present petition, the petitioners are seeking directions against Reliance Industries Limited (Respondent No. 1) to register the transfer of 12,500 shares (described in the Schedule being Annexure "D" to the above petition) in favour of the Petitioner No.1
2. Brief facts of the case are as follows:
a) The petitioner No.2 to 6 advanced through the petition No.1 to CRB Capital Markets Limited (Respondent No.2) the amounts aggregating to Rs. 24,75,000/-. All the said amounts were advanced by duly crossed account payee cheques drawn in favour of respondent No.2, complete details whereof are set out in Annexure "A" to the petition.
The said cheques were encashed and the proceeds thereof received by Respondent No.2 The said amounts were to be repaid by Respondent No. 2 after a period of 3 months on the respective due dates as mentioned in Annexure 'A' to the petition.
b) Towards repayment of the amount of Rs. 24,75,000/- so advanced, Respondent No.2 handed over to petitioner Nos.2 to 5, post dated cheques made out in their favour, in the amounts, advanced by petitioner Nos.2 to 6 respectively to Respondent No.2. The interest for the period of 3 months had been paid, by cheque, upfront, at the time of the advance of the loan itself. It was agreed that the said advance by the petitioner Nos. 2 to 6 to Respondent No.2 would be secured by the deposit, by Respondent No.2 of "A" Group shares in marketable lots together with duly executed Transfer Deeds.
c) Respondent No.2, by their letter dated 10th March, 1997, addressed to Petitioner No.1 recorded the essential features of the said transaction and enclosed with the said letter 13,000 shares of Reliance Industries Limited. The said shares stood in the name of Respondent No.3 (CRB Trustees Limited A/c CRB Mutual Fund) which was a group/sister concern of Respondent No.2. The said shares were forwarded by Respondent No. 2 to the petitioners as and by way of security for the amount advanced to the Respondent No.2. This security was subsequently reduced to 12,500 shares.
d) In the aforesaid circumstances, Petitioner No. 1 came into lawful possession of the said 12,500 shares together with the duly executed Transfer Deeds. As per the normal market practice governing the transaction and as particular agreed to, the petitioner No.1 had the option of either keeping the said 12,500 shares with the Transfer Forms as they were, or alternately, lodging the same for transfer in their name, pending repayment of the loan on the due date, when they would be re-transferred and returned, to the Respondent No.2 or their nominee(s).
e) Petitioner No.1 accordingly, on or about 2nd May, 1997 exercised the later option to have the said shares transferred in its name, pending repayment. This was done to secure itself against a situation where Respondent No.3 might apply for and obtain duplicate share certificates in which case the security in their hands, would be worthless Petitioner No.1 therefore on 2nd May, 1997 lodged the said 12,500 shares alongwith Transfer Forms duly filled in and stamped with Karvy Consultants Ltd. ("Karvy") the Registrars and Share Transfer Agents of Reliance Industries Limited. The said transfer was needless to say, subject to an obligation to retransfer the said shares, if the loan was repaid on the due date.
f) Karvy, however, expressed its inability to process and give effect to the transfer of the said shares in favour of the petitioners quoting the order dated 22nd May, 1997 passed by the Hon'ble Delhi High court in the Winding up petition filed by the Reserve Bank of India against the Respondent No.2 whereby the Official Liquidator, High Court, Delhi had been appointed as Provisional Liquidator of the Respondent No.2.
g) In the meantime, the Respondent No.1 committed default in repayment of the petitioners' dues which had become due for payment in June, 1997. The petitioner therefore, became entitled to enforce the security of the said shares.
h) The petitioners therefore by their Advocates' letter dated 6th February, 1998 addressed to the Official Liquidator, High Court, New Delhi and the Provisional Administrator of the Respondent No.3 (appointed by the Hon'ble Bombay High Court) called upon the Official Liquidator to pay to the petitioners the said aggregate sum of Rs. 24,75,000/- together with interest thereon and also given an express notice to them that if the said amount was not paid to the petitioners, the petitioners would proceed to enforce the security in their favour being the said shares. Clear notice was therefore given by the petitioners under Sec.176 of the Indian Contract Act, 1882 of their intention to sell the said shares and appropriate the net sale proceeds thereof towards the satisfaction of their dues and remit back the surplus amount if any.
i) The Official Liquidator, however, neither replied to the said letter nor paid to the petitioners, the amounts due and owing by respondent No.2 to them and redeem and/or release the security of the said shares. The petitioners therefore became entitled to the said shares absolutely and the pledge came to an end.
j) In the circumstances, and in view of the fact that a Provisional Liquidator of the Respondent No.2 had been appointed by the Hon'ble Delhi High Court, the petitioners made an application being Company application No. 1374/98 to the Hon'ble Delhi High Court (being the liquidation court) inter alia for direction against the company to register the transfer of the said 12,500 shares in the name of the petitioners. However, by an order dated 2nd September, 1998 passed by the Hon'ble Delhi High Court on the said Company Application, the Hon'ble Court was pleased to observe that since the transfer of shares was by a third party namely CRB Trustees Ltd (and not the Respondent No.2 of which the Provisional Liquidator had been appointed by the Court), the Hon'ble Court was not a proper forum and that the petitioners should approach proper forum. The said Order thus gave the petitioners leave to agitate their entitlement to transfer before this Board since the same is the appropriate forum. The petitioners therefore have approached this Board under Section 111A of the Companies Act, 1956 by filing the present petition. In view of the disclaimer by the Company (Liquidation) Court, this Board alone has jurisdiction.
k) After the petitioners filed the above petition, a scheme was proposed by the Provisional Administrator of Respondent No.3, appointed pursuant to the order of the Hon'ble Bombay High Court, prescribing a Certification Procedure for transfer of shares of various companies which were standing in the name of various CRB entities to the name of bonafide purchasers for value of the said shares. The said Certification Scheme/Procedure has been duly approved/ratified by the Hon'ble Bombay High court by its orders dated 22nd January, 1999 and 4th May, 1999.
l) The said Certification Scheme/Procedure specifically dealt with situations where securities together with transfer forms signed by a CRB entity were lodge with any company for transfer. It was provided in the said Scheme/Procedure that securities lodged prior to 21st May, 1997 did not require certification. The said Certification Scheme/Procedure further specifically provided that where documents seeking transfer of any security lodged for transfer with the Company prior to 21st May, 1997 were returned under objection by the company, the Provisional Administrator would be required to take steps to rectify the discrepancy within twenty-one days of receipt by the Provisional Administrator. The said scheme/procedure also provided that any accretion by way of bonus, dividend, interest or otherwise received by the Provisional Administrator in respect of the securities lodged with the company prior to 21st May, 1997 which had been "cum" purchased by a bonafide purchaser before the cut-off date, shall if received by the Provisional Administrator and upon a claim therefore by the investor, be passed by the Provisional Administrator to the bonafide purchaser. In other words while transactions relating to transfer, lodged after 21st May, 1997 would be scrutinized, those lodged before 21st May, 1997 would be acted upon and recognised without any further inquiry or certification, provided they were otherwise in order.
m) An Affidavit has been filed in the above petition by Respondent No.1 whereby Respondent No.1 have, in essence, acknowledged and accepted the petitioners' rights and their obligation to transfer the said 12,500 shares in favour of the petitioners subject to the compliance by the petitioners of certain formalities. It is, therefore, the pendency of the present proceedings which is preventing Respondent No.1 from transferring the said shares and delivering them to the petitioners.
n) An Affidavit in Reply has also been filed by the Provisional Administrator of the Respondent No. 3 opposing the above petition essentially on the ground of limitation and on the ground that it was difficult for the Provisional Administrator to verify whether consideration was received by the CRB Mutual Fund in respect of the said 12,500 shares. For want of knowledge, he has, therefore, denied that any consideration had been received by the Respondent No. 3 in respect of the said shares.
o) In the hearing held before the Board on 22nd March, 2001, it was pointed out that Respondent No. 3 could have no objection in the matter. Respondent No. 3 had been appointed by the Bombay High Court, as a person designata, and was thus required to act in accordance with the orders and directions of the court. The Bombay High Court, had itself sanctioned a scheme, in pursuance of which the actions of Respondent No. 3 were to be guided by under the said scheme, no certification was needed in respect of shares lodged prior to 21st May, 1997. The shares in question had admittedly been lodged on 2nd May, 1997 and hence Respondent No. 3 had nothing to do in the matter. Respondent No. 3, however, despite the fact that the petitioners had attached a copy of the Memo of Acknowledgement dated 2nd May, 1997 issued by Karvy acknowledging receipt by them of the said 12,500 shares from the petitioners for transfer, contended that it did not admit that the said 12,500 shares were lodged by the petitioners with Karvy on 2nd May, 1997, this Board was therefore pleased to direct the Respondent No. 1 to verify the records and file an Affidavit stating the date on which the said shares were lodged by the petitioners for transfer with Karvy. Accordingly, the Respondent No. 1 has filed an Affidavit confirming that the said 12,500 shares were, in fact, lodged by the petitioners for transfer with Karvy on 2nd May, 2001.
p) The Official Liquidator, High Court, Delhi appointed as Provisional Liquidator of the Respondent No. 2 has, despite notice neither filed any Affidavit in reply opposing the present petition nor appeared before the Board at the time of hearing of the above petition.
3. It is contended by the Respondent No. 3 that the above petition is barred by Limitation. It is submitted that the petition is well within limitation. Section 111A of the Companies Act, 1956 does not prescribe any special period of limitation (Refer: Finolex Industries Limited v. Mr. A.R. Chhabria reported in 2000(3) Bom C.R. 644). The present petition has been filed within the residuary period of limitation of 3 years prescribed under the Limitation Act. The petitioners have, however, moved with utmost dispatch. The refusal to transfer shares was intimated to them by the share transfer agents of the company by their letter dated 20th June, 1997 and 24th October, 1997. The Petitioners have thereafter, as required by law pursued the matter with the Official Liquidator of Respondent No. 2 and the Custodian of Respondent No. 3. The petitioners have been able to file this petition only upon liberty from the Hon'ble Delhi High Court, by its order dated 2nd September, 1998.
b) The Certification Scheme/Procedure drafted by the Provisional Administrator of Respondent No. 3 and duly ratified by the Hon'ble Bombay High Court, in essence, provides that while transactions relating to transfer of shares standing in the name of CRB entities lodged with the company for transfer by third parties after 21st May, 1997 would be scrutinized by the Certification Committee, those lodged before 21st May, 1997 would be acted upon and recognized without any further enquiry or certification. The date of 21st May, 1997 was, therefore, prescribed under the said Scheme/Procedure as a cut-off date. The said Scheme/Procedure specifically provided that where the documents seeking transfer of any security lodged for transfer with the company prior to 21st May, 1997 were returned under objection by the company, the Provisional Administrator would be required to take steps to rectify the discrepancies within twenty-one days. The 12,500 shares of Respondent No. 1 company standing in the name of Respondent No. 3 (whose transfer the petitioners are seeking by this petition) having been lodged with Respondent No. 1 company for transfer together with the duly stamped and executed Transfer Deeds on 2nd May, 1997 i.e. much prior to the cut off date of 21st May, 1997 appointed by the Provisional Administrator for requiring certification, is deemed to be bona fide and conclusive proof of the petitioners' entitlement and is not liable to be reopened or challenged as is now sought to be done by the Provisional Administrator. The Respondent No. 1 have affirmed on oath before this Hon'ble Board that the said shares were lodged by the petitioners with the Respondent No. 1 for transfer on 2nd May, 1997, i.e much before the cut off date of 21st May, 1997 prescribed under the said Certification Procedure/Scheme. The obvious underlying intent of the scheme was to presume that transactions before the cut-off date were genuine.
c) Without prejudice to the aforesaid, it is submitted that even otherwise, the petitioners, can establish their ownership, independently of any deeming fiction. The transfer of shares in favour of the petitioners and their right to have their names entered in the register of members was complete as soon as the said shares and the instrument of transfer duly stamped and executed were handed over to the Petitioner No. 1. The transfer of shares in favour of the petitioners was therefore complete as far back as on 10th March, 1997 itself. The said shares, therefore, ceased to be the property of the Respondents No. 2/3 and belonged to the petitioners, subject of course, to the right of the Respondent No. 2 to repay the petitioners' dues on the date due and redeem the security of the said shares which the Respondents No. 2 failed and neglected to do. In fact, in that behalf, as aforesaid as per the prevailing market practice, on 2nd May, 1997 itself, during the subsistence of the pledge, the petitioners has lodged the said shares together with the duly stamped and executed transfer deeds with Karvy for perfecting this transfer to their name pending repayment of their dues. The petitioners respectfully submit that passing of the order dated 22nd May, 1997 by the Hon'ble Delhi High Court appointing Official Liquidator attached to the Court as the Provisional Liquidator of the Respondent No. 2 with the direction to take charge of the assets and properties of the Respondent No. 2 and restraining the Respondent No. 2., its director, servants and agents from disposing of, alienating and/or parting possession of any of the assets of the Company, does not affect the petitioners' right to have the shares registered to their name in the register of members of the Company which is merely a formal, administrative or clerical act, the shares having been transferred by the Respondents No. 2 in favour of the petitioners as far back as on 10th March, 1997. (Refer in Re: Gammon India Limited reported in (1990) 3 Comp. L.J. 89). The rejection by the Company of the petitioners' application for registration of transfer on this account is therefore unjustified. Consequently, the said order and directives issued by the Reserve Bank of India are not applicable to the present case and in no way transgressed.
d) The said shares were lodged by the Respondent No. 2 with the petitioners in their ordinary course of business in good faith and for valuable consideration. The petitioners submit that the petitioners and particularly the petitioners No. 2, 4, 5 and 6 are middle class people and had invested their hard earned monies and life savings in the Respondent No. 2 of which they have been deprived in the circumstances aforesaid. Except for the refusal on the part of the Company in registering the transfer of the said shares in favour of the petitioner No. 1 in the peculiar circumstances stated above, the petitioners would have been able to sell the shares forwarded to them by the Respondent No. 2 as security and realize their dues.
4. In this connection, it may be stated that Section 111A(2) provides that the shares of a public limited company shall be freely transferable. Refusal for transfer of shares can be done only on the grounds as specified in Sub-section (3) of Section 111A of the Companies Act, 1956. However, if the company without sufficient cause refuse to register transfer of shares, the transferee may appeal to the Company Law Board for registration of transfer of shares.
5. Although the Official Liquidator, High Court, Delhi is a party respondent through CRB Capital Markets Limited (in liquidation), neither he has made his appearance nor filed any reply although a copy of the petition has been served upon him and also directed to file affidavit on the petition.
6. We have considered the various submissions made by the Counsels. From the fats stated above, it is clear that the impugned shares lodged prior to 21.5.1997 do not require any certification and the Respondent No. 1 Company should have transferred and sent it to the petitioners. However, Respondent No. 1 Company has not done so, as a matter of abundant caution in view of the Court Order issued by the Hon'ble Court Delhi. The Bombay Stock Exchange Notice No. 1698/99 dated 21st May, 1999 was issued to their members pursuant to the Hon'ble High Court, Mumbai's order dated 22nd January, 1999 and amendment to that order vide order dated 4.5.1999. The notice dated 21.5.1999 of the Bombay Stock Exchange and the order of the Bombay High Court dated 4.5.1999 are clear that the impugned shares were lodged with the Registrar of the Respondent Company before 21.5.1997 and thus should have been acted upon and recognized for transfer without any further inquiry or certification provided they were otherwise order.
7. Taking into consideration the aforesaid facts and circumstances of the case and also the facts that the plea of the defendants is not tenable, we are convinced that the Respondent No. 1 - Reliance Industries Limited should register the transfer of impugned 12,500 shares in favour of the petitioner and pay all such benefits accrued on those shares including bonus shares of the Respondent No. 1. We, accordingly, hereby direct the Respondent No. 1 company to transfer the said 12,500 shares in favour of the Petitioner No. 1 within 30 days from the date of receipt of this order. The petition is disposed of accordingly with no order as to cost.