Delhi District Court
Echo Holdings Private Limited vs Shri Ram Kumar on 12 October, 2018
Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
IN THE COURT OF SH. ARUN SUKHIJA,
ADDITIONAL DISTRICT JUDGE - 07, (CENTRAL DISTRICT)
TIS HAZARI COURTS, DELHI.
SUIT NO.: 12/2016
UNIQUE CASE ID NO.: 610068/2016
IN THE MATTER OF
Echo Holdings Private Limited
1E/15, Jhandewalan Extension,
New Delhi110055. ...Plaintiff
Versus
1. Shri Ram Kumar
Son of Shri Shiv Charan
Resident of
a) C/o Shri Shiv Charan
Village Sabga, Tehsil Barut,
Distt. Baghpat
b) C/o Shri Jaipal Singh
House No.11, Pyare Lal Park,
Basant Road, Ghaziabad.
2. M/s. Stock Holding Corporation
of India Ltd.
Having its Registered office at
Suit No. 12/2016 Page 1 of 74
Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
Mittal Courts, "B" Wing,
2nd Floor, 224, Nariman Point,
Mumbai400021.
And having its Regional office at
2nd Floor, 3 Vardhman Trade Centre,
DDA Complex, Nehru Place,
New Delhi - 110019.
3. M/s. Transworld Securities Limited
Having its registered office at
22/44, West Patel Nagar,
New Delhi.
4. M/s. Globe Capital Market Ltd.
804, Ansal Bhawan,
16 Kasturba Gandhi Marg,
New Delhi110001. ...Defendants
SUIT FOR RECOVERY OF RS.35,00,000/
Date of institution of the Suit : 06.08.2008
Date on which Judgment was reserved : 29.09.2018
Date of Judgment : 12.10.2018
Suit No. 12/2016 Page 2 of 74
Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
JUDGMENT
By way of present judgment, this court shall adjudicate suit for recovery of Rs.35,00,000/ filed by the plaintiff against the defendants.
CASE OF THE PLAINTIFF AS PER PLAINT Succinctly the necessary facts for just adjudication of the present suit, as stated in the plaint, are as under: (1) The plaintiff is the company duly incorporated under the provisions of the Companies Act, 1956, having its Registered Office at 1E/15, Jhandewalan Extension, New Delhi. The present suit has been signed, verified and instituted on behalf of plaintiff company by Mr. Sunil Dhupar, Director, who is the principal officer and duly authorized representative of the company by virtue of Board Resolution dated 1st July, 2008.
(2) The plaintiff is the owner of the following shares, held in
Demat form with defendant no.2 as under:
Sl.No. Name of share No. of shares held
by Plaintiff
1. Bhartiya Intt 800
2. GTL 1500
3. Henkal Spic 6300
4. KLG Systel 7300
5. RELIANCE CAPITAL 400
6. Rolta LTD 500
7. RELIANCE INDUSTRIES 263
8. Samtel Colour 300
9. SATYAM COMPUTE 500
Suit No. 12/2016 Page 3 of 74
Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
10. AUTORIDERS FINANCE 1000
11. DSQ Softwares 3000
12. HFCL 1000
13. MAHINDRA GESCO 56
14. Oswal AGRO 100
15. PENTAMEDIA GRAPHIC 2750
16. SILVERLINE TECH 1000
17. SURYA AGROIL 500
18. UTIMASTERPLUS 1500
19. Vikas WSP 13000
20. SINGAR INDIA 650
(3) The defendant no.1 was an employee of the associate
company of the plaintiff, namely M/s. Dhupar & Co. and was engaged therein as a peon, working for the past 10 years. The defendants no. 2 to 4 are companies incorporated within the meaning of the Companies Act, 1956 and are engaged in the business of conducting and Demand & broking activities. As would be demonstrated herein, all the Defendants are jointly and/or severally liable to compensate the Plaintiff for the loss suffered on account of fraud, negligence and acts of omission and commission.
(4) The plaintiff had opened a Demat account with client ID (Account No.) 15817033 with defendant no.2 on 15 th December, 1999. In the said account, Mr. Sunil Dhupar & Mr. S.C. Dhupar were authorized signatories on either or survivor basis to operate the said Demat account. Until 2001, the plaintiff was acting as investment consultant as well as investors to its sister concern M/s. Amba Securities (P) Ltd., Suit No. 12/2016 Page 4 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
who was an active stock exchange broker of M/s. Delhi Stock Exchange Association Ltd. After virtual closure of M/s. Delhi Stock Exchange Association Ltd., the plaintiff merely acted as investment company and no longer traded as investment consultants so actively. The defendant no.1 used to file papers and shares in the office of stock exchange, files instructions with depositories for transfer of shares to/from client accounts to brokers account etc., go to banks for deposit and withdrawal of cheques and cash, go the incomes tax department and Registrar of Companies for filing papers and documents. In this manner, the defendant no.1 became well conversant with the procedures and workings of the share market. However, by misusing his position, the defendant no.1 in connivance with the employees of defendants no. 2 and 3 managed to create a separate client ID for himself with defendant no.4. Thereafter, by using forged and manipulated documents and with the active connivance of defendants no. 2 and 3, the defendant no.1 transferred shares belonging to the plaintiff, to his own account and/ or that of defendant no.3, during the period 28.03.2005 to 25.07.2005. (5) The Defendant no.1 has got reissued a Delivery Instruction Slip from defendant no.2 by forging signature of plaintiff on letter head of the company, even when unused delivery instruction slip being no. 94951 to no. 95000 is lying with the plaintiff lock & key since 2003. No effort has been made by Suit No. 12/2016 Page 5 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
the defendant no.2 to ascertain facts that why new slip has been asked by the company when already 41 slips are still lying unused by the plaintiff. The details of the shares on reissued delivery instruction slips forging signature of plaintiff fraudulently transferred by defendant no.1 to his own Demat account or to the accounts of defendant no.3 on various dates which are as under: Date of Name of Quantity Client ID Beneficiary transfer script 07.06.2005 Bhariya Intt 800 10046444 Ram Kumar 07.06.2005 GTL 1500 10046444 do 25.07.2005 Henkal Spic 6300 10046444 do 31.05.2005 KLG Systel 7300 2005101 Transworld 19.05.2005 RIL Capital 400 2005903 Transworld 19.05.2005 Rolta 500 2005903 Transworld 28.03.2005 RIL Inds 263 10046444 Ram Kumar 25.07.2005 Samtel Colour 300 10046444 do 28.03.2005 Satyam 500 10046444 do (6) The aforesaid transactions were fraudulent in nature and no consideration was ever received by the plaintiff. The transfer of the shares could only be done by forging signature of the plaintiff on fresh delivery instruction slips issued by defendant no.2 with whom the shares of the plaintiff were being held and the plaintiff did not give any such instructions at any point of time. The original instructions slips of the relevant time are still in the possession of the plaintiff and the same are being filed as documents alongwith the suit.
Suit No. 12/2016 Page 6 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
(7) The defendant no.1 forged the signatures of Mr. Sunil Dhupar, a Director of plaintiff company and all the shares in question were transferred on the purported instructions of defendant no.1 by defendant no.2 to defendant no.3 with all credit of sale proceeds have been given to the account of defendant no.1 by the defendant no.3. The defendant no.1 was able to open his own Demat account with defendant no.4. The defendant no.1 opened the Demat account with client ID No. 10046444 with the address given as 9372, Gali Malkhan Singh, Gausala Road, Kishan Ganj, Delhi110006 and also opened the client account with defendant no.3 with Client Code CRK45.
(8) The defendant no.1 transferred the shares owned by the plaintiff to his own account or that of defendant no.3, through defendants no. 2 and 4. Such a transaction could not have been done without the active connivance of the officials of these companies. The direct result of such connivance is that the plaintiff has suffered a loss of about Rs.23 Lakhs at that point of time. Plaintiff had the intention of making a long term investment in the stocks as they had made investments without any active sale of any shares since October, 2003. Hence, cost has merely been calculated to ascertain approx. pecuniary loss as on July, 2005 whereas, plaintiff intends to keep the shares of these companies as on date also and requested that defendants no. 1 to 3 should be asked to Suit No. 12/2016 Page 7 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
reimburse the plaintiff with the shares which have been transferred from their Demat account illegally based upon forged signatures without their permission and authorization. (9) The plaintiff came to know of the aforesaid fraudulent transactions on around 26/27.07.2005 when the plaintiff sold 4000 shares of KLG Systel Limited though M/s. MLD Securities (P) Limited, a member broker of Delhi Stock Exchange. At this time, the plaintiff came to know that the shares in question had already been transferred to defendant no.1 and thereafter, to defendant no.3. The defendant no.1 was evidently permitted to undertake and carryout the transactions by defendants no. 2 to 4 without verification of the signatures or of the credentials of defendant no.1 by the said defendants. In this manner, the shares owned by the plaintiff were sold by unauthorized person, by using a different account and client ID, which is otherwise impossible without active connivance among all the defendants. (10) On coming to know of the above fraud, the plaintiff lodged a complaint with the Economic Offences Wing, Crime Branch on 30.07.2005 as well as with the police station Pahar Ganj, New Delhi, who lodged a formal FIR No. 462, dated 01.09.2006 and the Investor Grievance Cell of the National Stock Exchange. The plaintiff received a communication/ response filed by the defendant no.3 dated 17.10.2005, Suit No. 12/2016 Page 8 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
addressed to the National Stock Exchange of India. As per the same, the following position clearly emerged: (1) The defendant no.1 had not mentioned the name of his employer in the KYS (know your client) at the time of opening his account with defendant no.3. However, defendant no.3 has made no inquiries regarding his employment, financial strengths, investments in shares held and undertook transactions worth few crores on his behalf without checking his credentials as investors. This is more evident from the facts that few transactions of shares have been directly credited to the account of Member broker, defendant no.3 for which credit of sale proceeds have been made to defendant no.1. To correct his misdeed by the defendant no.3, these shares have been purchased from the Stock Exchange with cost of these purchases has been debited to defendant no.1 and shares transferred to the account of plaintiff. These transactions clearly show the malafide intention of all the defendants to the suit.
(2) No proper attempt was made to findout about the credit worthiness of the defendant no.1 by the defendant no.3 nor even about the correct address of defendant no.1. Defendant no.3 had received shares directly from the plaintiff's client ID 15817033 on forged signature and without any transaction with the plaintiff on 19.05.2005 Suit No. 12/2016 Page 9 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
(500 Rolta Ltd.) and on 19.05.2005 (400 Reliance Capital) and on 31.05.2005 (7300 KLG Systel Ltd.) and sale proceeds of these shares have been credited to defendant no.1 illegally. On coming to know of a discrepancy, which prompted the defendant no.3 to return the shares to the plaintiff, no attempt was made by defendant no.3 to contact the plaintiff or inquire into the same. The shares transferred to the account of defendant no.1 (10046444) had been transferred to the account of defendant no.3. No explanation or even mention of this fact has been given in the said letter, even though a specific allegation to this effect had been made in the letter issued by the plaintiff to defendant no.3.
(11) The above facts clearly indicative of connivance between the defendants no. 1 and 3 and establish the evasive response of the defendant no.3 to the specific allegations of the plaintiff, however, no such response has been received by the plaintiff from defendant no.4 and the only inference that can be drawn is an adverse inference against him.
(12) An integral part of the case of the plaintiff is that the defendant no.1 was also in connivance with the defendant no.2 without which, none of the transactions with the defendants no. 3 and 4 could have materialized. All the transactions transferring shares from the Demat account of Suit No. 12/2016 Page 10 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
plaintiff to the Demat account of defendant no.1 of all OFF MARKET Trades and also the client ID of one individual person only which under normal business circumstances should give rise to suspicion in the mind of depository to inquire from the signatory whether they have really issued these off market trade instruction slips, shows gross negligent performance of duties by defendant no.2, which is possible only with connivance of defendant no.1.
(13) The defendant no.2 was duty bound and under an obligation to bring the transactions in question to the notice of the authorized signatory of the plaintiff company as soon as there was some movement in the account. The plaintiff has learnt that the defendant no.2 even returned some of the slips since the signatures did not match and despite the same, the defendant no.2 did not inform the plaintiff as there was an active connivance between defendant no.1 and defendant no.2.
(14) The plaintiff is entitled to a money decree of Rs.23,00,000/ alongwith interest of Rs.12,00,000/ without prejudice to the facts that plaintiff is claiming to custody all the shares which have been transferred from their client ID by using forged signatures and without their authorization and instructions and the defendants are all jointly and/ or severally liable for the same on account of their acts of connivance, omission and commission. The plaintiff is also entitled to the claims and Suit No. 12/2016 Page 11 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
interest on the aforesaid amount w.e.f. 1 st August 2005 till the date of realization @ 18% p.a. CASE OF THE DEFENDANT NO.2 AS PER WRITTEN STATEMENT Summons was issued to defendants. However, the defendant No.1 has not appeared and he was proceeded Exparte. The defendants No.2 to 4 have filed their independent written statements. Succinctly, the case of the defendant no.2 is as under:
(i) The plaint is totally misconceived, without any basis, frivolous and vexatious.
(ii) Clause no. 18 of the agreement between the Plaintiff and defendant no.2 inter alia sets out the exclusive jurisdiction of the courts to try and entertain disputes between the parties therein. In the present suit, as per the agreement, the place of suit if at all would have been before the courts at Mumbai and not before this Court as the same has been mutually agreed upon by the plaintiff and defendant no. 2. The said clause states as under: "The Depository Participant and the Client further agree that all claims, differences and disputes, arising out of or in relation to dealings on the Depository including any transaction made subject to the Bye Laws & Business Rules of the Depository or with reference to anything incidental thereto or in pursuance thereof or relating to their validity, construction, interpretation, fulfillment or the Suit No. 12/2016 Page 12 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
rights, obligations and liabilities of the parties thereto and including any question of whether such dealings, transactions have been entered into or not, shall be subject to the exclusive jurisdiction of the courts at Mumbai only."
(iii) A similar agreement has also been executed between the plaintiff and defendant no.3 under which the purported dispute relating to the transactions and the sale proceeds thereof ought to have been resolved through similar arbitration proceedings. The subject matter of dispute between defendant no.3 and plaintiff also pertains to SEBI jurisdiction. Therefore, the dispute between the plaintiff and defendant no.3 should not be entertained by this Court and accordingly, the present suit deserves to be dismissed.
(iv) The suit claim in respect of disputed transactions pertains to certain Demat Transactions during the period of 28th March 2005 to 25th July 2005. Except the transactions dated 25th July 2005 in respect of Henkal Spic Shares (6300) & Samtel Colour Shares (300) all other transactions & claim in respect thereof is beyond the statutory period of limitation of 36 months. All transactions are independent of each other transactions & are to be dealt as a separate cause of action if at all there is any cause of action. The plaintiff cannot take an undue advantage of clubbing the transactions dated Suit No. 12/2016 Page 13 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
25th July 2005 with that of the previous transactions. Each transaction in the Securities Market is dealt as an independent contract and hence, all the transactions are to be dealt accordingly. The plaintiff had failed to claim the said amount within the period of limitation given under the Limitation Act, 1963. The plaintiff has lodged a complaint with the Economic Offences Wing, Crime Branch on 30th July 2005 as well as filed an FIR against defendant no.1 on 1st September 2006 being FIR No.
462. Therefore, from the above conduct of the plaintiff and the record it is beyond doubt that the plaintiff was in knowledge of the said alleged claim. The plaintiff had failed to prove its case before the Criminal Court and it is after thought that the plaintiff decided to file the present suit for the reasons best known to the plaintiff. The plaintiff ought to have claimed the same simultaneously within the period of limitation which the plaintiff has admittedly failed to do. Therefore, the present suit is barred by limitation period.
(v) The plaintiff had opened a Beneficial Owner (BO) account with defendant no.2 on December 06, 1999. The plaintiff was assigned Client ID 15817033 & DP ID being IN301127. Pursuant to the opening of the aforesaid account, defendant no.2 sent to the plaintiff an Account opening kit containing intimation letter, Suit No. 12/2016 Page 14 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
user manual (operating procedure), list of scripts eligible for Demat, Trade Instruction booklet, copy of agreement executed between defendant no.2 and the plaintiff. The plaintiff had entered into an agreement with defendant no.2 to avail Demat services. Since then the plaintiff is opening his aforesaid BO Account regularly. The plaintiff has not transferred or closed its account and still continue to hold the same with defendant no.2. From the period 280305 to 250705 Delhi Branch of defendant no.2 received the following instructions from the plaintiff and the same were effected after receiving the duly filled in and executed Delivery Instruction Slips (DIS) by the plaintiff: Date of Name of DIS No. Qty. Client ID Beneficiary Market Transfer Scrip Type 07.06.05 Bhariya 350140395523 800 10046444 Ram Kumar OM Intt 07.06.05 GTL 350140395523 1500 10046444 Ram Kumar OM 25.07.05 Henkal 350140395526 6300 10046444 Ram Kumar OM Spic 31.05.05 KLG Systel 350140395522 7300 IN557823 Transworld Market 19.05.05 RIL Capital 350140395521 400 IN557823 Transworld Market 19.05.05 Rolta 350140395521 500 IN557823 Transworld Market 28.03.05 RIL Inds 350190135370 263 10046444 Ram Kumar OM 25.07.05 Samtel 350140395526 300 10046444 Ram Kumar OM colour 28.03.05 Satyam 350190135370 500 10046444 Ram Kumar OM 13.06.05 KLG Systel 350140395524 5000 10046444 Ram Kumar OM 20.06.05 KLG Systel 350140395525 2300 10046444 Ram Kumar OM 20.06.05 Rolta 350140395525 500 10046444 Ram Kumar OM 20.06.05 Reliance 350140395525 400 10046444 Ram Kumar OM Capital Suit No. 12/2016 Page 15 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
(vi) Upon receipt of the above mentioned DISs, defendant no.2 followed the standard procedure of verification of DIS range issued, signature on the DIS, Name and number of shares, ISIN of the security. After matching all these parameters, the trade was processed in due course. After following the normal procedure of Signature verification, details of the Securities and verification/ securitization, these trades were processed in due course of business.
(vii) Defendant no.2 states that DIS Nos.350190135370, 350140395521, 350140395522, 350140395524 given by the plaintiff were processed by Ms. Anita K Deputy Manager. The said DIS Nos. was given in respect of the Delhi instructions for the following Shares of the Companies: Date DIS Nos. Quantity Shares Market Type 2832005 350190135370 500 Satyam Off market Computers 263 Reliance Off Market Industries 1952005 350140395521 500 Rolta Market 400 Reliance Market Capital 3152005 350140395522 7300 KLG Systel Market 1362005 350140395524 5000 KLG Systel Off Market Suit No. 12/2016 Page 16 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
(viii) The plaintiff had not stated anything in the plaint with respect to 5000 shares of KLG Systel debited vide DIS No.350140395524 dated 13th June, 2005. The plaintiff has also not stated anything in the plaint with respect to 2300 shares of KLG Systel, 500 shares of Rolta and 400 shares of Reliance Capital debited vide dis No. 350140395525 dated 20Jun05.
(ix) Defendant no.2 states that the Plaintiff's Demat account was credited with the following shares received from Defendant No.3: Sr. Date Scrip Quantity No. 1 11062005 KLG Systel 5000 2 15062005 KLG Systel 2300 3 16062005 Reliance Capital 400 4 16062005 Rolta 500
(x) DIS No.350140395525 dated 20th June, 2005 for 2300 shares of KLG Systel, 500 shares of Rolta and 400 shares of Reliance Capital was processed by Ms. Shashi Prabha Singh who has resigned from Defendant no.2 in January, 2007. DIS Nos.350140395523 & 350140395526 dated 7th June, 2005 and 25th July, 2007 were processed by Mr. E. Ahmed, Assistant Manager of Defendant No.2. Both the DIS were issued by the Plaintiff for debit of 1500 - GTL, 800 - Bhartiya Suit No. 12/2016 Page 17 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
International Shares, 300 - Samtel and 6300 - Henkel Spic shares respectively.
(xi) The plaintiff has used his DIS booklet containing DIS Nos.350190135331 to 350190135370. Another DIS booklet was issued to the plaintiff on 17th May 2005 on its request letter dated 10th May 2005 containing DIS Nos.350140395521 to 350140395530. The plaintiff has also got a fresh DIS booklet containing DIS Nos. 350140426251 to 350140426260 issued to it on the basis of the requisition form dated 20th July 2005.
(xii) The said trade/debits in the BO account of plaintiff were reflected in the Building cum Transaction and Holding Statement of the plaintiff which were regularly sent by defendant no.2. Accordingly, the plaintiff was fully aware and was in knowledge of the said debits in his account. However, even after receipt of Billing cum Transaction and Holding Statement the plaintiff failed to inform any error whatsoever to the defendant no.2 much less that the same were not authorized, as allegedly contended by the plaintiff. Defendant no.2 has acted in good faith based on the duly authorized instructions as set out hereinabove and as required by the law stated hereinafter. The plaintiff's trade instructions were executed by defendant no.2 and the same were valid and genuine.
Suit No. 12/2016 Page 18 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
(xiii) One of the Directors (Mr. Suresh Chander Dhupar) for his personal account) had filed a similar suit on similar facts being Suit No. 454 of 2008 at Tis Hazari Courts, Delhi. The said Director after a prolonged period of 7 months in the month of July 2005 allegedly purported to have noticed the alleged disputed transactions and that at the same time, the transactions in respect of the plaintiff account were also carried out. The fact of the alleged disputed transactions was also informed to the DCP (Crime Branch Economic Offences) on July 29, 2005. Pursuant to the demand notice of the police, defendant no.2 has replied to the police letters and the letter to the police was forwarded alongwith originals of the documents sought by the police. The documents were submitted for the enquiry and investigations to be conducted by the police.
(xiv) Despite submitting all the required documents, details & information, as sought by the police, the plaintiff has chosen to file the present plaint under reply without having exhausted his grievances and allegations pending with police. Apparently, it is the plaintiff's after thought that he is unlikely to succeed in the police investigation and enquiry that has made him to file this suit. Plaintiff is not an ordinary investor but a regular investor and he is aware of the importance and safe handling of DIS Suit No. 12/2016 Page 19 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
book and also the possible misuse thereof in the prevailing stock market situation. The plaintiff through its agent i.e. his staff admittedly defendant no.1 herein used to forward DIS to execute the instructions for all trades whether through market or otherwise. The plaintiff never had any grievances of the services rendered by defendant no.2 from inception i.e. since year 1999 (opening of an account). Defendant no.2 had acted in accordance with the procedure laid down under the SEBI and NSDL regime.
(xv) Defendant no.2 provides depository facilities to investors within the meaning of the Depositories Act, 1996 and for this purpose, it has been registered as a Depository Participate ("DP") of National Securities Depository Limited (NSDL) and Central Depository Services Ltd. (CDSL). During the course of its business as depository participate, it facilitates dematerialization of securities by the issuer companies. The legislative framework governing the depository operations essentially comprises of three tier structure i.e. The Depositories Act, 1996, which provides abroad framework for setting up and working of depositories in India, SEBI (Depositories & Participants) Regulations, 1996, notified under The Depositories Act, which provides regulatory framework for depositories and the Byelaws of the Suit No. 12/2016 Page 20 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
Depository which govern the functioning and operational procedures of the depository. The depository provides its facilities to investors to hold their securities in dematerialized (electronic) form. It also facilitates settlement of securities in an electronic form. These facilities are made available to the investors through a network of Depository Participants (defendant no.2 herein). An investor, who wants to avail the said facilities, needs to open and hold an account with a DP. (xvi) Dematerialization is process by which a person who is holding security certificates in physical form can get his physical security certificates converted into electronic balances and hold the same in his/ its account with a DP. Dematerialization does not result in change in ownership but results in change, only in the method of holding the security. The procedure of securities is that the registered holder of a security, whose name appears in the books of the company and who intends to dematerialize his securities has to deface and surrender the physical security certificates to his DP alongwith Dematerialization Request Form (DRF). The DP then sends the certificates along with the DRF to the concerned company/ R & T Agent. If the company/ R & T Agent after the scrutiny of the security certificates and signature(s) finds the same in order, it cancels the Suit No. 12/2016 Page 21 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
physical security certificates and confirms the credit in dematerialized (electronic) form in favour of the security holder by intimating the Depository electronically. On receiving such information from the company/ R & T Agent, the depository advises/ instructs the DP to credit the securities to the concerned client's account. No credit of any security to the account of any client shall be made by Depository unless the Depository has received an authorization from the Company/ R & T Agent.
(xvii) Client of DP (such as plaintiff herein) may get credit of securities in dematerialized form either on account of dematerialization of physical security certificates held by the investor or on account of acquisition of securities in a dematerialized form. Any share holder who wants to dematerialize his shares can only do so if the company of which he is the share holder, has made arrangement by joining the Depository system by setting up/ installing the necessary infrastructure i.e. establishing electronic connectivity, either directly or through Registrar & Transfer Agent, as per the procedure specified by the Depository.
(xviii) The Defendant no.2 is not liable to pay any money whatsoever to the plaintiff as allegedly claimed in the plaint. The plaint does not disclose any cause of action Suit No. 12/2016 Page 22 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
against defendant no.2. The allegation of plaintiff against defendant no.2 that defendant no.2 had actively connived with defendant no.1 for the alleged unauthorized transaction are baseless and false. Defendant no.2 deny the allegations and submits that defendant no.2 had in fact effected the said delivery instructions duly authorized by the plaintiff in the ordinary cause of its obligation. Defendant no.2 had acted within the law and the procedure prescribed thereunder and had rendered services in terms of the agreement entered into between the plaintiff and defendant no.2.
(xix) It is an admitted position on the part of the plaintiff that defendant no.2 was an employee of the plaintiff and worked for the plaintiff over 10 years. Defendant no.1 being employee acted for the plaintiff for all the purposes dealing with defendant no.2 including but not limited to such as bringing/ filing DIS and other documents. Defendant no.2 has denied that plaintiff had suffered any loss on account of duly authorized and valid instructions for debiting the plaintiff's account maintained with defendant no.2. Defendant no.2 is not liable for any alleged loss caused to plaintiff. Defendant no.2 had acted in due diligence and without any negligence. Defendant no.2 had acted strictly in Suit No. 12/2016 Page 23 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
accordance with the procedure laid down by the SEBI & NSDL in executing the trade instructions authorized by the various account holders including the plaintiff herein. Defendant no.2 has denied that DIS's received by defendant no.2 were forged and the same were not authorized by the plaintiff. The DIS's were duly signed by the plaintiff and the same were verified and entries were effected by defendant no.2 after complying all the requirement. However, in any way the claim in respect of the alleged transactions are barred by limitation. Plaintiff had given proper delivery instructions to defendant no.2. Without admitting liability, defendant no.2 states that the delivery instruction slips were in the possession of the plaintiff and were duly filled, signed and given to defendant no.2 or for that matter any prudent person would deem that all DIS are held by A/c holder in safe custody and that the same are not handled negligently.
(xx) From the transactions shown in tabular chart, it is pertinent to note that the transaction(s) dated 28.03.05, 07.06.05, 20.06.05 & 25.07.05 are "off market"
transactions effected by the plaintiff from its account to defendant no.4 in the beneficiary A/c of defendant no.1. However, certain transaction(s) dated 19.05.05 & 31.05.05 market i.e. through stock exchange from Suit No. 12/2016 Page 24 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
plaintiff A/c to defendant no.3 who is apparently a broker of plaintiff and allegedly it appears the non receipt of sale proceeds of the said shares by the plaintiff is a matter of dispute between the plaintiff and defendant no.3. The said dispute ought to have been resolved by plaintiff and defendant no.3 through arbitration process under the concerned stock exchange, bye law rules and regulations. Defendant no.2 do not admit the statements made by the plaintiff. It is an admitted position on the part of the plaintiff that sale proceed in respect of the shares is collected by the plaintiff's employee i.e. defendant no.1 and the same is a subject matter of dispute between plaintiff and defendant no.1. Plaintiff be directed to provide bank statements etc. to show proof of payments received by defendant no.1. Defendant no.2 had a limited role to play as a custodian of securities in Demat A/c and credit/debit of the same as and when the valid instructions are received from the A/c holder including the plaintiff. The credit entries are freely allowed without plaintiff's specific authorization or instructions. Defendant no.2 is not statutorily duty bound to confirm prior debit of the securities or otherwise whether the seller (plaintiff herein) had received the consideration amount of the sale proceeds or not. Defendant no.2 Suit No. 12/2016 Page 25 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
merely record the debit entries based on the valid instructions received which has rightly been done in the present case. Defendant no.2 is a reputed company and securities of millions of investors are kept in the custody of defendant no.2. Defendant no.2 adopts standard business practices in addition to compliance of the regulatory requirements while rendering Demat services to its various customers including to the plaintiff. Plaintiff is an investment company an therefore, the plaintiff is and was always aware of the nature of transactions and the kind of market in which the plaintiff operated. The defendant no.2 had given full co operation to the police conducting investigation and enquiry upon lodging a formal FIR by the plaintiff. Defendant no.2 is not aware whether defendants no. 3 and 4 had complied with KYC norms while opening defendant no.1's account with defendants no. 3 and 4. Therefore, defendant no.2 is not concerned with any transaction of plaintiff or defendant no.1 held with defendants no. 3 and 4. From the letter dated 171005 of defendant addressed to OfficerinCharge, Investor Grievance Cell, NSE, New Delhi, it is evident that defendant no.3 had transferred the shares to the account of plaintiff. It is an internal matter between the plaintiff and defendant no.3. All the shares received Suit No. 12/2016 Page 26 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
from other accounts have been credited to the account of the plaintiff. Defendant no.2 is not statutorily duty bound to differentiate between "off markets" and "through market" trades. Transaction of 500 shares of Rolta & 400 shares of Reliance Capital affected on 19.05.05 and 7300 shares of KLG Systel affected on 31.05.05 to the account of defendant no.3 are "through market" trades and not "off market" transaction. The sale proceeds of the same allegedly defendant no.1 has received on behalf of the plaintiff.
CASE OF THE DEFENDANT NO.3 AS PER WRITTEN STATEMENT Succinctly, the case of the defendant no.3 is as under:
(i) The present suit is a gross abuse of process of law.
The present suit has been filed merely to harass and harangue the defendant wherein baseless, unfounded, irrelevant and scandalous allegations have been leveled against the defendant whereas the basic controversy and dispute remains between the plaintiff and its own employee. By way of present suit, the plaintiff has made unsubstantiated allegations of fraud and conspiracy against its own employee and others and has sought a roving enquiry which cannot be permitted. Since there was never any agreement between the plaintiff and the defendant no.3 nor Suit No. 12/2016 Page 27 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
had any understanding of any nature with it, the defendant no.3 is not a necessary party to the suit and therefore, the name of the defendant no.3 should be deleted from the array of parties.
(ii) On merits, the contents of the plaint have been denied and it has been submitted that since there has never been any relationship of any nature whatsoever with the plaintiff, there arises no question of defendant no.3 being liable to compensate the plaintiff in any manner whatsoever. The alleged shares referred to by the plaintiff having been transferred to the account of defendant no.3, the same since having been received by the defendant no.3 directly from plaintiff depository pool without any direct transaction from plaintiff, the same were returned back to the depository account of the plaintiff and receipt of the same has been duly confirmed by the defendant no. 2's transaction statement. The defendant no.3 is not concerned with the dispute between the plaintiff and other defendants. Since the defendant no.1 fulfilled all his obligations, defendant no.3 found no reason to suspect any alleged wrong doing by defendant no.1. The address of defendant no.1 was authenticated Suit No. 12/2016 Page 28 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
matching it with the voter identification provided by defendant no.1, the question of any negligence by the defendant no.3 does not arise. Besides under KYC i.e. Know Your Client Program defendant no.1 had provided to defendant no.3 xerox copy of his PAN Card number and other relevant details like bank and depository proof. Apparently, defendant no.3 took all measures of due diligence as per rules, regulations and relevant guidelines of NSE, SEBI etc. in opening the account of defendant no.1. The employees of defendant no.3 and other defendants including those of the plaintiff are not even known to each other. Defendants being separate entities, allegation of connivance among defendants are untenable. Since the defendant no.3 has gone strictly by the SEBI rules and regulations, the question of compensating plaintiff does not arise. Defendant no.3 had taken all due measures, as provided under NSE & SEBI rules, regulations and guidelines for verification and authentication of the credentials of its clients, therefore, imputation of connivance by employees of defendant no.3 with those of other defendants and defendant no.1 is wrong and incorrect. The information submitted Suit No. 12/2016 Page 29 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
by defendant no.1 under KYC is generally based on documents furnished by clients in CRF i.e. Client's Registration Form. The defendant no.1 has beneficiary account with defendant no.4 and has invested in IPOs as told by defendant no.1 in his brief interaction with branch manager. Since the defendant no.1 had a PAN Card and had shown to the defendant no.3, his earnings for three consecutive years at Rs.50,000/ his financial position was presumed to be correct by the defendant no.3 as there was nothing to prove otherwise.
CASE OF THE DEFENDANT NO.4 AS PER WRITTEN STATEMENT Succinctly, the case of the defendant no.4 is as under:
(i) The defendant no.4 is a registered depository Participant (DP) of National Securities Depository Limited and has the role to open depository accounts of clients as per rules and regulations defined by the NSDL and SEBI. The role of defendant no.4 is to open Demat Account, which is done only after collecting all the required documents i.e. ID proof, address proof, photograph, account opening form etc.
(ii) The Demat account of the defendant no.1 is with defendant no.4 which was opened on 02/11/2000 Suit No. 12/2016 Page 30 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
bearing client ID No. 10046444. At the time of opening of the said account, the defendant no.1 entered into an agreement with defendant no.4 which clearly states that defendant no.4 is not liable in any manner towards losses, liabilities and expenses arising from the claims of third parties in respect of securities credited to the clients account i.e. defendant no.1. (These terms and conditions of the agreement are for all the clients who open a Demat account with the defendant no.4).
Defendant no.4 is just the custodial to the shares of defendant no.1 in his Demat account. The shares are received in the Demat account of defendant no.1 automatically as standing instruction for the same was given by him at the time of opening of the Demat account, hence, defendant no.4 has no control on the shares received from any counter DP. The defendant no.4 had no concern with the said transaction, as the defendant no.4 is just a DP of the receiving party in the said case. The case of plaintiff is not applicable to defendant no.4 as no instruction slip for transfer of shares (i.e. shares of plaintiff) was received/ executed by defendant no.4 as it is Suit No. 12/2016 Page 31 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
having Demat account of the receiving party i.e. defendant no.1 not of the plaintiff.
(iii) Defendant no.4 is neither jointly nor severally liable to compensate the plaintiff for the alleged loss. The defendant no.1 Sh. Ram Kumar opened account with client I.D. No. 10046444 with defendant no.4 after completing all the formalities as per law and the account was activated on 02.11.2000. The defendant no.4 is having the account of receiving party i.e. defendant no.1 and has no control over receipt of shares in any Demat account, hence, this case is not applicable to defendant no.4. As the defendant no.4 was not directly or indirectly involved in transfer of shares in subject matter, so, the question of the allegations of connivance, omission and commission are baseless, frivolous on its part, hence, denied and question of compensation does not arise.
(iv) Additional plea has been taken by the defendant no.4 stating that plaintiff wants to extort money from defendant no.4 by adopting dubious means and the present suit has been filed to put pressure on the defendant no.4.
REPLICATION AND ISSUES Suit No. 12/2016 Page 32 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
Plaintiff has not filed any replication.
From the pleadings of the parties, following issues were framed vide order dated 05/04/2013:
1) Whether the defendant no.1 dealt with the Share Certificates particulars whereof are given in para no.7 of the plaint, by forging the signatures of the Director of the plaintiff and whether the plaintiff for the said reason is entitled to recover Rs.23 lacs from the defendant no.1? OPP
2) Whether the defendants no. 2 to 4 are also liable or the loss if any in the sum of Rs.23 lacs suffered by the plaintiff? OPP
3) If the above issues are decided in favour of the plaintiff, whether the plaintiff is entitled to any interest and if so, for what period and at what rate? OPP
4) Whether the jurisdiction of this Court to try the suit is barred by any of the provisions of the Securities and Exchange Board of India Act, 1992 (SEBI Act)? OPD2
5) If the above issue is decided against the defendant no.2, whether this Court does not have the territorial jurisdiction to try the suit insofar as against the defendant no.2 for the reason of Clause 18 of the Contract between the plaintiff and the defendant no.2? OPD2
6) Whether the entire claim in suit is within time? OPP
7) Even if it is held that the defendant no.1 is guilty of forgery, whether the plaintiff is guilty of any negligence and laches and waiver so as to be disentitled to the relief of recovery of any monies? OPP Suit No. 12/2016 Page 33 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
8) Relief?
EVIDENCE OF THE PLAINTIFF AND DOCUMENTS RELIED UPON BY THE PLAINTIFF Plaintiff has led its evidence and examined Sh. Sunil Dhupar as PW1, who has filed his evidence by way of affidavit wherein he reiterated and reaffirmed the contents of the plaint and relied upon the following documents :
1. Board resolution dated 01/07/2008 as Ex.PW1/1.
2. Copy of Memorandum and Article of Association as Ex.PW 1/2.
3. Copy of Incorporation Certificate as MarkA.
4. Original complaint with Economic Offence Wing, Crime Branch as Ex.PW1/4.
5. Copy of a formal FIR No. 462 dated 1.9.2006 as MarkB.
6. Original letter dated 09.11.2006 alongwith transaction statement as well as original delivery instruction slip as Ex.PW1/6 (Colly.).
EVIDENCE OF THE DEFENDANTS AND DOCUMENTS RELIED UPON BY THE DEFENDANTS On the other hand, the defendant no.2 examined Sh. Ehtesham Ahmed, Manager as DW1, who has filed his evidence by way of affidavit wherein he reiterated and reaffirmed the contents of the written statement filed by the defendant no.2.
Suit No. 12/2016 Page 34 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
Defendant no.2 also examined Ms. Anitha K., Deputy Manager as DW2, who has filed her evidence by way of affidavit wherein she reiterated and reaffirmed the contents of the written statement filed by the defendant no.2 and relied upon the following documents :
1. Copy of account opening form as Ex.DW2/1.
2. Delivery Instruction Slip as Ex.DW2/6 (already exhibited as Ex.P7).
3. Copy of agreement dated 1.12.1999 as Ex.DW2/2 (already exhibited as Ex.D1).
4. Delivery Instruction Slips as Ex.DW2/3 to Ex.DW2/5, Ex.DW2/7 and Ex.DW2/8.
5. Delivery Instruction Slip as Ex.DW2/9 (already exhibited as Ex.P8).
6. Billing cum transaction and holding statements of plaintiff's account as Ex.DW2/10.
7. Letter dated 28.12.2006 addressed to SI Rajiv Bhardwaj as Ex.DW2/11.
Defendant no.3 examined Sh. Harbeer Singh Chadha as DW3, who has filed his evidence by way of affidavit wherein he reiterated and reaffirmed the contents of the written statement filed by the defendant no.3 and relied upon the following documents :
1. Authorisation letter as Ex.DW3/1.
Suit No. 12/2016 Page 35 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
2. Copy of judgment dated 12.05.2014 passed by Sh. D.K. Malhotra, the then Ld. ADJ14, Central, Tis Hazari Courts, Delhi as Ex.DW3/2.
Defendant no.4 examined the summoned witness Sh. Sandeep Soni, JJA in the court of Sh. Rajesh Malik, ACMM01, Central District, Tis Hazari Courts, Delhi as D4W1, who proved on record the following documents:
1. Photocopy of account opening form of Shri Ram Kumar opened with M/s. Globe Capital Market Ltd., bearing client ID NO. 10046444 as Ex.D4W1/1 (OSR).
2. Photocopy of agreement dated 20.10.2000 executed between M/s. Globe Capital Market Ltd. and Shir Ram Kumar as Ex.D4W1/2 (OSR).
3. Photocopy of delivery instruction slip issued by Shri Ram Kumar as Ex.D4W1/3 (Colly. 28 in number) (OSR).
4. Photocopy of requisition slip issued by Shri Ram Kumar as Ex.D4W1/4 (OSR).
Defendant no.4 also examined Sh. Ram Singh Paul as D4W2, who has filed his evidence by way of affidavit wherein he reiterated and reaffirmed the contents of the written statement filed by the defendant no.4 and relied upon the Board resolution dated 14.02.2017 as Ex.D4W2/1.
Suit No. 12/2016 Page 36 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
ISSUE WISE FINDINGS ISSUE NO.4
4) Whether the jurisdiction of this Court to try the suit is barred by any of the provisions of the Securities and Exchange Board of India Act, 1992 (SEBI Act)? OPD2 This issue has already been decided against the defendant No2 and in favour of the plaintiff vide order dated 05/04/2013 passed by Hon'ble Delhi High Court. ISSUE NO.5
5) If the above issue is decided against the defendant no.2, whether this Court does not have the territorial jurisdiction to try the suit insofar as against the defendant no.2 for the reason of Clause 18 of the Contract between the plaintiff and the defendant no.2? OPD2 ARGUMENTS OF PLAINTIFF The defendant No2 on the basis of exclusive jurisdiction clause enumerated in Clause 18 of the agreement entered into between the plaintiff and defendant no2 states that this Hon'ble court has no territorial jurisdiction to try the suit rather only the courts of Mumbai have territorial jurisdiction to try the suit. It is relevant to mention her that during cross examination of DW1 i.e. Ehtesham Ahmad, Manager of Stock Holding Corporation Of India Ltd deposed that "it is correct that the two DIS mention in para No.5 of my affidavit were process by me in Delhi. It is correct that DIS Ex. P7 bears stamp of Delhi office of Stock Holding. It is correct Suit No. 12/2016 Page 37 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
that from Ex.7 it cannot be inferred that it was sent to Mumbai for processing. It is correct that DIS Ex. P8 was processed by me at Delhi office and from this DIS also it cannot be inferred it was processed at Mumbai and it also bears stamp of Delhi."
It is submitted that even though the registered office of defendant no2 is at Mumbai, however no cause of action occurred at Mumbai. The said agreement between the plaintiff and the defendant no2 was entered into at Delhi and are having regular working / branch office at Delhi and all the reported bogus transaction of share transfers had been processed by defendant No 2 at their Delhi office at the instruction of defendant No1 who submitted the DIS to the defendant No2 at their Delhi office, hence all and every cause of action arose within the territorial limits of Delhi and no cause of action took place in Mumbai. Further all the other defendants including defendant no2 are voluntarily and actually carrying on business within the territorial limits of Delhi, and criminal trial with regard to matter in issues is also pending before the Courts of Delhi. It is submitted that merely because Defendant no2 has registered office at Mumbai the same cannot oust the territorial jurisdiction of courts of Delhi and the maxim "expressio uniusest exclusio alterius' would not be applicable as in the present case the courts of Mumbai has no jurisdiction to try the present suit at all and only the courts of Delhi has jurisdiction.
Suit No. 12/2016 Page 38 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
FINDINGS OF THE COURT The perusal of the Copy of agreement dated 1.12.1999 as Ex.DW2/2 (already exhibited as Ex.D1), it reflects that it was executed at Delhi and the same was also the observation of the Hon'ble High Court in the orders dated 5/4/2013. The perusal of the testimonies of DW1 and DW2, it clearly reflects that entire Delivery Instruction Slips in question was processed in Delhi. I am fully in agreement with the submissions of the Plaintiff that no part of cause of action has arisen in Delhi. It is well settled law that parties cannot confer jurisdiction upon the court which otherwise has no jurisdiction. In the present case only the Delhi Courts alone have jurisdiction to try and present case. Therefore, the agreement regarding conferring of jurisdiction upon the Mumbai Courts would be of no help to the defendant No.2.
Accordingly, in view of submissions made hereinabove and arguments of the Plaintiff, Issue No.5 is decided in favour of the Plaintiff and against the defendant No.2.
ISSUE NO.6
6) Whether the entire claim in suit is within time? OPP ARGUMENTS OF PLAINTIFF With regard to the above framed issue, it is submitted that the present suit filed by the plaintiff is well within the limitation as per Limitation Act 1963. Though the transaction pertains to the period prior to 28/07/2005, plaintiff came to know about the alleged fraud on 2627/07/2005 by defendant No1 and Suit No. 12/2016 Page 39 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
preferred the complaint on 30/07/2005 before concerned authorities and the plaintiff filed the present suit on 24/07/2008. As per section 17 of the Limitation Act and settled proposition of law period of limitation starts from the date of knowledge, hence the suit filed by the plaintiff is well within limitation prescribed under law.
ARGUMENTS OF DEFENDANT NO.2 In securities market, every transaction is considered as an independent contract. All the transactions are independent of each other and are dealt separately as a separate cause of action. The plaintiff in his statement given at the time of crossexamination has also accepted that the sale transactions of shares are independent of each other. The alleged transactions pertain to share transfers between certain demat accounts during the period ranging between 28.03.2005 to 25.07.2005. All the alleged transactions occurred on different dates and are separate as well as distinct. The loss, if any, in respect of these alleged transactions accrued when the transactions were effectuated. The claim amount in respect of the alleged transactions can be ascertained separately and individually. It is pertinent to mention that even the Central Government levy security transaction tax on every purchase or sale of security as the case may be. As per Section2(a) of Securities Contracts Regulation Act, 1956 'contract' means a contract for or relating to purchase or sale of securities. It is apparent from the plain reading of the section that every transaction relating to the Suit No. 12/2016 Page 40 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
purchase or sale of a security is a contract constituting a separate cause of action. The cause of action in respect of alleged transactions arose on the date when the transactions were effectuated. The period of limitation for filing suit for recovery of money as per Limitation Act is three years and it has to be calculated from the date on which the said transactions were actually effectuated. The present suit was filed on 24.07.2008. Therefore, the claim of the plaintiff in respect of all the transactions except the transactions which occurred on 25.07.2008 is barred by law of limitation.
FINDINGS OF THE COURT The case of the Plaintiff is that the defendant No.1 has forged and fabricated the signatures of Plaintiff/Director of Plaintiff Company and got reissued the Delivery Instruction Slips from defendant No.2 and on the basis of Delivery Instruction Slips got converted the shares of the plaintiff either in her own account or to the account of defendant no.3. It is further averred defendants No.2 to 4 have connived with defendant No.1 and thereby the Plaintiff has suffered loss to the tune of Rs.23,00,000/. The case of the Plaintiff as per its pleading is covered under Article 91(a) of the Schedule of The Limitation Act. The Article 91(a) of The Limitation Act is reproduced herein: Suit No. 12/2016 Page 41 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
For Three years. When the
91. compensation,-- person having
(a) for wrongfully the right to the
taking or possession of
detaining any the property
specific movable first learns in
property lost, or whose
acquired by theft, possession it is.
or dishonest
misappropriation,
or conversion;
As per case of the Plaintiff the defendant no.1 got converted the shares either in his own account or account of defendant No.3. The starting period of Limitation as per Article 91(a) commences from the period when the person having the right to the possession of the property first learns in whose possession it is. In the present case as per the plaint and evidence of the Directors of Plaintiff came to know about the same on or about 26 th or 27th July, 2005 and after that the Plaintiff had made the complaint to the Police Authorities on or about 30.07.2005. Moreover, Section 17 of The Indian Limitation Act also came to the rescue of the Plaintiff. The present suit was filed on 24 th July, 2008 by the Plaintiff is well within Limitation period of 3 years as the last day of Limitation was 26th/27th July,2008 in terms of Article 91(a) of The Limitation Act.
Accordingly, in view of submissions made hereinabove and arguments of the Plaintiff, the issue No.6 is also decided in favour of the Plaintiff and against the defendants.
Suit No. 12/2016 Page 42 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
ISSUE NOS.1 TO 3 AND 71) Whether the defendant no.1 dealt with the Share Certificates particulars whereof are given in para no.7 of the plaint, by forging the signatures of the Director of the plaintiff and whether the plaintiff for the said reason is entitled to recover Rs.23 lacs from the defendant no.1? OPP
2) Whether the defendants no. 2 to 4 are also liable or the loss if any in the sum of Rs.23 lacs suffered by the plaintiff? OPP
3) If the above issues are decided in favour of the plaintiff, whether the plaintiff is entitled to any interest and if so, for what period and at what rate? OPP
7) Even if it is held that the defendant no.1 is guilty of forgery, whether the plaintiff is guilty of any negligence and laches and waiver so as to be disentitled to the relief of recovery of any monies? OPP Issues No.1 to 3 and 7 are interrelated and inter connected to each other and accordingly they are decided together. ARGUMENTS OF PLAINTIFF With regard to issue No.1, it is submitted that as the Defendant No.1 despite given opportunity failed to put forth his written statement and deny the said contention of the plaintiff and further proceeded exparte the said contention of the plaintiff is deemed admitted by the defendant No1. The Defendant No3 in para 7 under heading " Reply On Merit" of its written statement admitted that the said shares were transferred on said various Suit No. 12/2016 Page 43 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
dates in the account of defendant No3. It is also admitted by defendant no.3 that defendant No1 was having trading/ client account with it which clarifies that defendant No1 & 3 were in active connivance. Further it is admitted by Defendant No3 in its cross examination that the plaintiff neither have contractual relationship with plaintiff nor the plaintiff was having any trading account with defendant No3. It is also admitted by the defendant No3 that transfer of shares cannot take place in absence of trading account. The plaintiff has proved his contention against the defendant No1. The plaintiff has proved through unambiguous deposition and documents exhibited that Defendant No1 has worked with Plaintiff for around 10 years as Peon. Defendant No.1 used to do the works relating to stock exchange transaction, to submit share, transfer deed, bills etc to the brokers and clients, use to collect the payment and deposited the same in the bank on behalf of Plaintiff's company. Further, the plaintiff in his deposition has proved that Defendant has forged the signature of director of the plaintiff company got reissued new DIS from Defendant no2 by confiscating the letter head of the company without any authority of plaintiff company and with the help of those DIS transferred the shares of the plaintiff company to defendant No3. Further it has also came in the plaintiff evidence as well and defendant evidence that Defendant No1 has accounts with defendant No3 and 4. Further during cross Examination DW3 has admitted that the alleged shares proceeds were transferred in the Suit No. 12/2016 Page 44 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
account of defendant No1 despite the plaintiff company has no account with the defendant No3.
With regard to issue No.2, it is submitted that without active connivance of the defendants the illegal transfer of shares of the plaintiff could not have possibly be taken place. More explicitly the plaintiff has proved that the defendant No1 being the employee of the plaintiff use to deal with the defendant No2 on behalf of the plaintiff and was having good ties/ links with the employees and officials of the defendant No2. The defendant No1 using his links and ties got reissued Delivery Instruction Slips( hereinafter referred as DIS) from defendant No2 by forging signatures of the plaintiff on letter head of the company, even when unused Delivery Slips bearing no. 94951 to 9500 was lying with the plaintiff's lockup since 2003. The defendant No2 without any verification with the plaintiff issued the new DIS. Further the plaintiff has also proved that the defendant No1 in active connivance with the defendants was able to open the Demat Account with defendant No4 with the help of forged and fabricated credentials. The defendant no1 in active connivance with other defendants also got opened trading/ client account bearing Client ID No. 10046444 with defendant No3. Defendant No1 in active connivance with the defendant no2 with the help of reissued DIS and accounts with the other two defendants got illegally transferred the shares of the plaintiff to defendant No3. Further, it is proved that Defendant no3 has also not verified from his employer about his credentials despite its Suit No. 12/2016 Page 45 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
name has been mentioned account opening form. The address of the defendant no1 was also not verified by defendant No3. During the cross examination the defendant No2 failed to produce any document which shows that the defendant no2 had verified the required credentials prior to issue new DIS. It is also admitted that the defendant no2 had not checked the fact that DIS issued earlier in favour of plaintiff were unused. It is further relevant to mention here that it is proved by the plaintiff that Defendant no4 has not verified the credentials of the defendant No1 before opening of his Dmat Account. Further, in his Crossexamination the plaintiff has unambiguously depose and prove the connivance between the defendants as the shares were transferred from his Demat Account by defendant No1 in off market trade. The Defendant No1 by forging the signatures of plaintiff has transferred 3 shares namely 7300 KLG systel and 4000 shares of reliance capital and 500 shares of Rolta from the Demat Account of plaintiff directly to the Demat Account of Defendant No3 and in this regard the sale consideration of these 3 shares were credited to the account of Defendant No1 by defendant No3.
With regard to issue No.7 it is submitted that the plaintiff can never held guilty of any negligence and laches which disentitles it to the relief of recovery of money. The doctrine of laches which includes negligence is an equitable defense that seeks to prevent a party from ambushing someone else by failing to make a legal claim in a timely manner and because it is an equitable Suit No. 12/2016 Page 46 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
remedy, laches is a form of estoppel or waiver. The doctrine of laches on its surface is same as a statute of limitations. The purpose of both laches and statutes of limitations is to ensure legal claims are brought in a reasonable time period, so that evidence and reliable witnesses can easily be found. The doctrine of laches is concerned with the reasonableness of a delay in filing a legal action. This means that laches is casespecific, relying on the judge's determination of whether a plaintiff simply waited so long that the defendant cannot put on a reasonable defense. In order to successfully claim laches as a defense, the defendant must prove that his status has changed because of the unreasonable delay in filing the lawsuit, causing him to be in a worse position than at the time the claim should have been filed.
It is submitted that the present suit filed by the plaintiff is well within the limitation as per Limitation Act 1963 and there is no delay in the same. Further none of the defendants have proved that their status has changed because of the unreasonable delay in filing the lawsuit, causing him to be in a worse position to put forth their defense than at the time the claim should have been filed. ARGUMENTS OF DEFENDANT NO.2 In so far as issue no.1 is concerned, the PW1 has averred that defendant no.1 has by procuring the letter head of the company from its registered office and thereby forging signatures of the directors of the plaintiff company, managed to issue delivery instruction slips from defendant no.2. Subsequently, the defendant Suit No. 12/2016 Page 47 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
no.1 by forging the signatures of the directors of the plaintiff company and in connivance with defendants no. 2 & 3 transferred the shares of the plaintiff company to his own account and/ or account of the defendant no.3 during the period ranging from 28.03.2005 to 25.07.2005. It is submitted that the plaintiff has neither mentioned the numbers of the DIS alleged to have been forged through which transactions were effectuated nor he has produced them before the court with his plaint as well as in evidence. The courts in catena of judgments have held that the original of the documents alleged to have been forged must be produced before the court in order to establish the averment of forgery. In Shashi Lata Khanna V. State of Delhi & Ors. the court observed as follows: "Before proceeding further in the present case it may be mentioned that the alleged rent note dated 2nd June 1983 which is stated to have been forged by the accused persons and which is stated to have been used by the accused persons knowing or at least having reasons to believe the same to be forged was never produced in original in the court. For an offence of forgery of document it is necessary that the original document should have been produced in the court. Although it is the case of the prosecution that the original rent note was in the possession of the accused persons and they have produced the same and on the other it is the case of the accused that they tendered the original rent note to the investigating office at the time of the investigation but it was deliberately not produced by the prosecution, the fact remains is that the Suit No. 12/2016 Page 48 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
original alleged forged document was never produced before the court. We cannot forget that the burden to prove a criminal case is on the prosecution and quite heavy."
The Hon'ble Supreme Court in V. Sujatha V. State of Kerala observed as follows: "In the absence of the original of Ex.P9 and P15 being produced at the trial, which as many as four prosecution witnesses admit were available with the Customs, how could a case of forgery be built up on their photostat copies, punishable under section 471 of the Indian Penal Code and the sequel offence under Section 420 I.P.C.?"
Therefore, in the light of the aforesaid decisions, the plaintiff was under an obligation to produce the original DIS slips before this Hon'ble Court in evidence which was completely within the right of the plaintiff. PW1 in his cross examination has said that "To the best of my knowledge, delivery instruction slips of the disputed transactions are with the economic offences wing of the Police. Those DIS are not summoned for today in the Court. The original DIS is not produced before this court since it is lying with the Police." Thus, it is apparent from the statement of PW1 that the fact that DIS were lying with the Economic Offences Wing of Police was completely within the knowledge of PW1 and he had a right as well as as obligation to produce them before the court. Under these circumstances, the plaintiff has failed to produce them before the Court and discharge the onus of proving forgery against defendant no.1.Suit No. 12/2016 Page 49 of 74
Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
Also, the plaintiff has apparently failed to lead any evidence in support of his averment of forgery. He has merely stated this averment in general terms without any evidentiary proof of the same. Neither the originals of the DIS alleged to be forged by defendant no.1 nor report of handwriting expert in proof of his averment of forgery against defendant no.1 has been brought on record. The onus of proof to prove the averment of forgery was on the plaintiff and the plaintiff has miserably failed to prove the mens rea and actus reus on the part of defendant no.1. Therefore, in the absence of any evidence in support of this averment by the plaintiff, the entire claim of the plaintiff in the present suit is liable to be dismissed for the just reason of being baseless, false, frivolous and bad in the eyes of law.
That so far as issue no.2 is concerned, the plaintiff has failed to discharge the onus placed on him that the defendant no.2 is not liable for any loss suffered by the plaintiff in view of the following:
(a) Defendant no.2 cleared the delivery instruction slips submitted by the defendant no.1 on behalf of plaintiff after exercising due care & caution and under bona fide belief that defendant no.1 approached the defendant no.2 for reissue of DIS on behalf of plaintiff company considering the previous conduct & dealings of the plaintiff company with defendant no.2 and the admitted position of fact, as it is apparent from the affirmation of the PW1 in his cross examination as well as plaint, that the plaintiff Suit No. 12/2016 Page 50 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
used to send defendant no.1 to defendant no.2 for various activities including filing of DIS. The relevant portion of the statement of PW1 is reproduced below: "It is correct that defendant no.1 used to do the works relating to stock exchange transaction, to submit share transfer deed, bills etc. to the brokers and clients and used to collect payment and deposit the same in the bank on behalf of the plaintiff's company. He also used to do all these activities with regard to M/s. Amba Securities Pvt. Ltd."
"Sometimes defendant no.1 and sometimes other person used to visit the office of defendant no.2 on behalf of the plaintiff company. Mostly it was the defendant no.1 who used to visit to transact and file papers with defendant no.2 on behalf of the Plaintiff company. Again said, he used to deposit the delivery instruction slip on behalf of the plaintiff company with defendant no.2 and sometimes he used to collect delivery instruction slip on behalf of the Plaintiff company."
Secondly, procuring of letter heads of the Plaintiff Company by defendant no.1 is a subject matter of dispute between the plaintiff and defendant no.1 and defendant no.2 has nothing to do with the same. Moreover, no evidence has been led by the plaintiff to prove such procurement on the part of defendant no.1.
The plaintiff has also averred that defendant no.2 was negligent and did not make any inquiry while issuing fresh DIS to defendant no.1 even when the DIS issued earlier were lying with the plaintiff. This averment of the plaintiff is belied by PW1 during his Suit No. 12/2016 Page 51 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
crossexamination. The relevant portion of the statement of PW1 is produced below: "Delivery instruction slip is like a cheque book. I do not know whether the fresh delivery instruction book can be issued if the account holder is already having another delivery instruction slip book. But to my knowledge, when some DIS like the remaining cheque book leaves are remaining, the client can ask for the fresh instruction slip which is normal behavior adopted by the clients. I am a chartered accountant. There is no prohibition in issuance of second DIS book even if all the leaves of first DIS book are unused."
As stated above, neither any documentary evidence nor report of handwriting expert has been brought on record to substantiate the averment of forgery against defendant no.1.
It is also averred by the plaintiff that defendant no.2 permitted defendant no.1 to carry out alleged transactions without verification of the signatures or credentials of defendant no.1. In this behalf, it is submitted that defendant no.2 effectuated the said transfers of shares on receipt of duly filled and executed DIS from defendant no.1 after following the standard procedure of verification of DIS range issued, signature on the DIS, name and number of shares, ISIN of security etc. Therefore, defendant no.2 had acted in good faith and in compliance of the procedure established by law from time to time. The plaintiff has failed to point out any specific failure to comply with the standard practice. On other hand, the defendant no.2 has successfully proved that it has fully complied Suit No. 12/2016 Page 52 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
with the standard procedures and there is not even any negligence on the part of the defendant no.2 not to say of any collusion.
That the plaintiff was regularly provided the Account Statement of his account by the defendant no.2. As such, the plaintiff was fully aware of the said transfers as the trade/debits in the BO account of the plaintiff were regularly reflected in the Billing cum transaction and Holding statement of the Plaintiff and the Plaintiff failed to inform any error whatsoever to the defendant no.2 (Ex. DW1/10). Therefore, the plaintiff cannot allege that he was not aware of the transactions in question. The loss, if any, suffered by the plaintiff can solely be attributed to its own negligence, omission or commission and not the negligence, omission or commission of defendant no.2. PW1 has also admitted in his cross examination that defendant no.2 used to send the periodic statement of account of all transactions to its clients. The relevant portion of the statement of PW1 is produced below: "It is correct that the defendant no.2 used to send periodically statement of account of all transactions to its clients. I have never made any complaint to the stock holding corporation regarding nonreceipt of periodical statement of account regarding account of plaintiff company."
The plaintiff has also averred that by misusing his position, defendant no.1 in connivance with the employees of defendant no. 2 & 3 managed to create a separate client Id for himself with defendant no.4. Thereafter, he forged and manipulated Suit No. 12/2016 Page 53 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
the documents with the active connivance of defendant no. 2 & 3 and transferred the shares belonging to the plaintiff to his own account and/ or that of defendant no.3 during the period 28.03.2005 to 25.07.2005. The plaintiff has miserably failed to mention the names of the employees of defendant no.2, whose connivance the defendant no.1 transferred the alleged shares. The plaintiff has made a very general allegation as to collusion rather than coming up with specific allegation against any particular employee. It is also evident from the statement of PW1 as well as averment made in the plaint. The relevant portion of the statement of PW1 given by him at the time of cross examination is reproduced below: "As far as I know I have not named any employee of defendant no.2 in my plaint as well as affidavit. Nor have I impleaded any particular employee of defendant no.2 in the present suit."
Therefore, the allegation against the employees of defendant no.2 is vague and cannot be relied upon. Also, the averment has been made in complete disregard of the specific provision laid down under Order 6 Rule 4 CPC. The said rule provides that "In all cases in which the party pleading relies on any misrepresentation, fraud, breach of trust, willful default or undue influence and in all other cases in which the particulars may be necessary beyond such as are exemplified in the forms aforesaid, particulars (with dates and items if necessary) shall be stated in the Pleading."
Suit No. 12/2016 Page 54 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
The Hon'ble Supreme Court in the matter of Bishun Deo Narain and Anr. V. Seogeni Rai and Ors. observed that "No proper particulars have been furnished. Now if there is one rule which is better established than any other, it is that in cases of fraud, undue influence and coercion, the parties pleading it must set forth full particulars and the case can only be decided on the particulars as laid. There can be no departure from them in evidence. General allegations are insufficient even to amount to an averment of fraud of which any Court ought to take notice, however strong the language in which they are couched may be and the same applies to undue influence and coercion."
Also, the Hon'ble Supreme Court in the matter of Varanaseya Sanskrit Vishwavidyalaya and Anr. V. Rajkishore Tripathi and Anr. observed as follows: "We do not think it is enough to state in general terms that there was collusion without more particulars. We have already set out the general allegations of the alleged collusion by which the plaintiff respondent seemed to imply some kind of fraud. He indicated no reason for this and made no specific allegation against any particular person."
Therefore, in the absence of material particulars of employees of defendant no.2 in whose collusion defendant no.1 effectuated the alleged transactions, the said averment of the plaintiff cannot be relied upon and is completely baseless, vague, false & frivolous.
Suit No. 12/2016 Page 55 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
In case of offmarket transactions, the payment aspect is handled completely outside the environment of Depository Participant between the selling client and the buying client. Selling client is the transferor and buying client is the transferee in off market trading of securities. An off market transaction is settled between two parties on mutually agreed terms & conditions and the clearing corporation or the stock exchange is not involved. These include legacy transfers, gifts, shifting of securities between a client and subbroker,transactions in unlisted securities etc. The transactions that are alleged to be transferred by defendant no.1 in the present suit by forging the signatures of the director of the plaintiff company in connivance with the employees of defendant no. 2 & 3 are mostly offmarket transactions in respect of which the payment aspect was not within the control of defendant no.2 who in turn is not answerable to the averment of the plaintiff that the consideration of such alleged transfers was credited to the account of defendant no.1. Again, no evidence has been brought on record to substantiate this averment.
It is submitted that there were no monetary transactions between the plaintiff and defendant no.2 nor defendant no.2 is the beneficiary of any of the transactions. The only role of defendant on.2 is to process the instructions on receipts of proper authorization which has been done sincerely by the defendants. As there have been no monetary transactions which need recovery of Suit No. 12/2016 Page 56 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
money suit to be filed against defendant no.2, therefore, the defendant no.2 is not liable to pay any amount.
Therefore, under these circumstances, the averment of the plaintiff that the defendant no.1 had in connivance with the employees of defendant no.2 transferred the shares of the plaintiff to his own account and/or that of defendant no.3 is completely baseless, false, frivolous and bad in the eyes of law.
It is, therefore, quite apparent that the plaintiff by filing the present suit for recovery of money has just shot in the dark with the intention to extract money and hide his own negligence, omission or commission in the loss suffered by him.
That so far as issue no. 7 is concerned even if the defendant no.1 is held guilty of forgery, the plaintiff must also be held liable for negligence on his part. As it is stated in the written statement, plaintiff is not an ordinary investor but a regular investor & is aware of the importance and safe handling of DIS book and also the possible misuse thereof in the prevailing stock market situation. PW1 has also accepted the fact in his cross examination that the plaintiff company is not an ordinary investor but a regular investor and as such is aware of the important of safe handling of DIS book. Defendant no.1 was the duly authorized agent of the plaintiff who had acted in ordinary course of business of the plaintiff while submitting DIS to the defendant no.2 for effectuating the transfers of shares as stipulated therein. Therefore, according to well established position in law governing the relations of the Suit No. 12/2016 Page 57 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
principal of his agent, the plaintiff must be held liable for any loss suffered by him due to his own negligence as well as for the acts of his agent i.e. defendant no.1 herein. Defendant no.2 is not liable to reimburse the plaintiff for any loss suffered by him on account of such acts, omission and commissions.
The plaintiff has intentionally, cleverly & falsely stated in his plaint that defendant no.1 was the employee of the associated company of the plaintiff i.e. M/s. Dhupar & Co. and was engaged therein as a peon for the last 10 years prior to the filing of the suit who used to file papers & shares to/from client accounts to brokers etc., go to banks for deposit and withdrawal of cheques and cash, go to the income tax department and registrar of companies for filing papers and documents. This averment of the plaintiff is contradictory to the statement made in the letter dated 09.11.2006 (PW1/6) addressed by the plaintiff company to the Inspector, Economic Offences Wing, Crime Branch wherein para 1 it was stated that defendant no.1 was working as a peon in our company and managing the day to day jobs assigned to him in our organization as well as handling the similar affairs in our sister concern including M/s. Amba Securities Pvt. Ltd. Plaintiff has also averred in his plaint that the alleged transfers were made by the unauthorized person i.e. defendant no.1. The above contradiction clearly substantiates that the present suit was cleverly drafted by the plaintiff and the facts stated therein were fabricated so as to falsely lay claim for recovery of money from the defendants and hide Suit No. 12/2016 Page 58 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
his own negligence. As is apparent from the prior conduct of the plaintiff that it used to send defendant no.1 for all the works as referred above, the averment of the plaintiff that the shares were transferred by an unauthorized person is not sustainable and plaintiff is liable for the authorized acts of his agent i.e. defendant no.1. Under these circumstances, the claim of the plaintiff is not sustainable seen from any angle. As such, the defendant no.2 prays for dismissal of the suit qua it.
ARGUMENTS OF DEFENDANT NO.3 The plaintiff has repeatedly raised allegations of misappropriation, connivance and fraud on defendant no.3. The burden to prove how much fraud or connivance has been carried out was upon the plaintiff. They have failed to provide any evidence that would prove beyond doubt that there is any substance to what the plaintiff has repeatedly alleged. Their allegations remain presumptive and hollow.
Defendant no.3 is a SEBI registered share broking company and had opened share trading account of defendant no.1, after due diligence and as per SEBI norms. The activities carried out within trading account of defendant no.1 with defendant no.3 were bonafide share trading activities.
The share transfers that were received directly from the account of plaintiff by defendant no.3, were received only for the benefit of defendant no.1 and were duly credited in defendant no.1's own account. This fact has been admitted by the plaintiff via para Suit No. 12/2016 Page 59 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
no. 9 of the plaint as well as para no.9 of their evidence affidavit and is not in issue.
The act of receiving of the said shares was absolutely involuntary on part of defendant no.3. The said demat account was only under the direct control of the plaintiff.
The shares transferred directly to defendant no.3 by the plaintiff were subsequently and promptly return transferred to plaintiff's demat account and none of it was retained by defendant no.3. This fact has been explicitly admitted by the plaintiff in para no. 14 a. & 14 c. of the plaint as well as para no. 14 a. & 14 c. of the evidence affidavit and is not in issue.
As there is no contract between the plaintiff and defendant no.3, there is no basis for the claim of any consideration or damages by plaintiff against defendant no.3.
As per Section 44 read with Section 46(4) of The Companies Act, 2013 [S. 41(3), s.82 r/w s.152.A of the old Companies Act, 1956] it is well established that shares are movable property and are freely transferable, also that, the record of the depository shall always be prima facie evidence of the ownership of the shares.
Once the transfer instruction was executed from the plaintiff's account and the specified quantity of shares were credited into the account of the defendant no.1, he by law acquired a good and absolute title of ownership over those shares, as the record of Suit No. 12/2016 Page 60 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
the depository was accordingly altered to that effect, at that very instant.
Any subsequent transferee, who acquires the shares from defendant no.1, shall be beyond the reach of plaintiff. The plaintiff shall have no right to question the title of any such subsequent transferee.
The role of defendant no.3, being a stock broker of defendant no. 1, was limited to that of a passive service provider for the trading of shares on the National Stock Exchange online platform.
The whole consideration for the shares sold by defendant no.1, were credited to the benefit of defendant no.1 in his own account. This fact is clearly not in issue as the plaintiff has admitted to it in para no.9 of the plaint.
The dispute raised by the plaintiff is limited to relationship of master & agent between plaintiff and defendant no.1, and a contractual dispute between plaintiff and defendant no.2. Only defendant no.1 and defendant no.2 are answerable to the plaintiff.
It is well established vide para no. 3 & no.4 of the plaint as well as para no.4 of the evidence affidavit, that defendant no.1 was a trusted agent of the plaintiff's associates since even before the incorporation of the plaintiff company. Defendant no.3 cannot be dragged into dispute arising within private understanding between plaintiff and defendant no.1.
Suit No. 12/2016 Page 61 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
The plaintiff has failed to prove that the share transfers from the said demat account were improper and fraudulent in spite of having opportunity to give evidence. The only tenable explanation which remains is that the transfers were proper and were made with the prior consent of the plaintiff.
The plaintiff has no right to question the validity of the contract between defendant no.1 and defendant no.3. Defendant no.3 is not duty bound and is under no obligation to the plaintiff.
The present matter and the concerned factsinissue have been materially and substantially been in issue in a former Suit No.553/2014 titled Sh. Suresh Chander Dhupar (Plaintiff) Versus 1. Ram Kumar, 2. Stock Holding Corporation of India Ltd.,
3. M/s. Transworld Securities Ltd., & 4. M/s Globe Capital Markets Ltd. (Defendants).
The said suit was adjudicated upon and dismissed on merits via decree dated 12th May 2014 in the court of Sh. D.K. Malhotra, Ld. ADJ 14 : Central, Tis Hazari Courts, Delhi. The decree has since become final and binding.
Sh. Suresh Chander Dhupar, who was plaintiff in the previous suit, is also party in the present suit as he is a director and an authorized person to operate the said demat account of the plaintiff company. This is evident from para no.4 of the plaint, para no. 17 of the evidence affidavit as well as para no. 1 of the original complaint which is annexed to the plaint.
Suit No. 12/2016 Page 62 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
The plaintiff cannot be allowed to be reopen the material issues which were directly in question in the previous suit and which have already been judicially decided by the Hon'ble court as they are now binding on the parties.
Defendant no.3 has placed reliance on the decision of a 3 judge bench of the Hon'ble Supreme Court in Ramachandra Dagdu Sonavane (D) Vs. Vithu Hira Mahar (Dead) by LRs on 9 October, 2009 [CIVIL APPEAL Nos.71847185 OF 2001]. THE IMPERATIVE ABSENCE OF DILIGENCE BY PLAINTIFF There is a peculiar absence of any act of diligence having been done by plaintiff company itself. There is no explanation on record as to why a private limited company having multiple directors would blindly give an unsupervised access to its property worth millions of rupees to a low level employee.
The multiple transactions of shares being sent inside as well as out of the demat account of the plaintiff and of defendant no.1 carried on for a period of 5 months i.e. from March 2005 until July 2005, yet no action was undertaken by the plaintiff to check the alleged misappropriation or to put the defendants under notice. It is difficult to assume that these transfers were done without the prior knowledge and consent of the plaintiff. ARGUMENTS OF DEFENDANT NO.4 The role of defendant No.4 is confined to opening of Demat Account of its client, which is done only after collecting all the required documents i.e. ID proof, address proof, Photograph, Suit No. 12/2016 Page 63 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
Account Opening Form etc. from its client. The Defendant No.1 had opened his Demat Account with Defendant No.4 company on 20.10.2000 bearing client ID No. 10046444. At the time of opening of the said Demat Account the Defendant No.1, the Defendant No.1 had entered into an agreement dated 20.10.2000 with the Defendant No.4. The original Account Opening Form [Exhibit DW4/2] pertaining to the said Demat Account as well as the original Agreement signed and executed by Shri Ram Kumar [Exhibit DW4/3] as well as the original delivery instruction slips/requisition slips [Exhibit DW4/4] issued by Shri Ram Kumar from 01.04.2004 to 30.11.2006; were seized by Shri Rajiv Bhardwaj, Inspector, Investigating Officer, Delhi Police in relation to the investigation of case FIR No. 462 dated 01.09.2006 under section 420, 468, 471 IPC, registered with Police Station Paharganj, but being investigated by Economic Offences Wing, Crime branch, New Delhi. The Defendant No.4 being the depository Participant, has no liability whatsoever towards any loss, expense etc. arising from the claim of third party, in respect of the securities credited to the client's account that is account of Defendant No.1. The Defendant No.4 was just the custodian of the shares of Defendant No 1 held in his aforesaid Demat Account The share are received in the Demat Account of Defendant No. 1 automatically, since standing instructions were given by Defendant No.1 at the time of opening of Demat Account. Hence Defendant No.4 has/had no control on the shares received from any counter Depository Suit No. 12/2016 Page 64 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
Participant. The Defendant No.4 had no concern with the said transaction, as the Defendant no.4 is just depository Participant, of the Receiving Party in the said case. The allegation made by the Plaintiff against the Defendant No.4 are absolutely false and baseless more so since no instruction slip for transfer of shares i.e. with respect to the shares of plaintiff, were received/executed by Defendant No .4 as it was having Demat Account of the receiving party that is Defendant No.1 and not of the Plaintiff. The Defendant No.4 has no liability whatsoever either joint or several, towards the plaintiff. The Defendant No.4 has not caused any loss to the plaintiff. The Defendant No.4 is not liable to compensate the plaintiff. The Defendant No.1 namely Mr. Ram Kumar opened account with client ID No.10046444 with Defendant No.4 after completing all the formalities as per law. The account was activated on 02.11.2000. The Defendant No.4 is not concerned with the transfer of shares from the account of plaintiff as it is not maintaining his account. The Defendant No.4 has no role to play in transfer of shares from the Demat account of plaintiff to Demat account of Defendant No.1. The Defendant No.4 was neither directly nor indirectly, involved in transfer of shares. There was/is no connivance between Defendant No.4 or its officials, with Defendant No.1. No loss has been caused to the plaintiff due to any act, omission or conduct on the part of the Defendant No.4. There has been no connivance between the Defendant No.4 and any other Defendant in the suit. No adverse inference can be drawn against Suit No. 12/2016 Page 65 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
Defendant No4. No illegality or infirmity has been committed by Defendant No4. The suit of the plaintiff without any cause of action against Defendant No4, No amount whatsoever is payable by the Defendant No.4 to the plaintiff. The plaintiff wants to extort money from Defendant No.4 by adopting dubious mean and the captioned suit has been filed against Defendant No.4 to exert undue pressure upon it. The plaintiff is not entitled to any relief as against the Defendant No.4 and the captioned suit is liable to be dismissed as against Defendant No.4.
FINDINGS OF THE COURT The crux of the entire case is forgery and fabrication of the signatures of the Director(s) of the Plaintiff Company by defendant No.1 and this burden has to be first of all discharged by the Plaintiff and noneelse. The Plaintiff has submitted that since defendant No.1 has not appeared and therefore the entire allegations qua defendant No.1 would be deemed to be admitted and in this manner the Plaintiff has been able to prove forgery and fabrication of the signatures of the Directors of Plaintiff Company done by defendant No.1. The present case does not only relate to defendant No.1 but there were also serious allegations against defendants No.2 to defendants No.4 and specifically defendant No.2 had reissued DIS and cleared DIS on the basis of alleged forged and fabricated signatures of Plaintiff/Director of Company and therefore, the said defendants have every right to rebut the said Suit No. 12/2016 Page 66 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
allegations. The Plaintiff has to stand on its own legs and cannot base its case on the mere absence of defendant No.1.
It is first of all to see what is basic pleading of forgery and fabrication by defendant No.1. In para No.5, it is stated that defendant No.1 in connivance with the employees of Defendant Nos. 2 and 3 managed to create a separate Client ID for himself with Defendant No.4 and thereafter, by using forged and manipulated documents and with the active connivance of Defendant No.2 and 3, the Defendant No.1 transferred shares belongings to the Plaintiff, to his own account and/or that of Defendant No.3 during the period of 28.03.2005 to 25.07.2005. In para No.6 it is pleaded that defendant No.1 got reissued an DIS from Defendant by forging signature of the Plaintiff on the letter head of the company, even when unused DIS was lying with the plaintiff. In para no.7 it is further pleaded that on the reissued delivery instruction shares as mentioned in para No.7 was transferred either in the account of defendant No.1 or on account of defendant No.3 on the aforesaid dates. In para no.9 it is pleaded that defendant No.1 forged signatures of Mr. Sunil Dhupar and all the shares in question were transferred on the purported instructions on Defendant No.1 by Defendant No.2 to defendant No.3 with all credit of Sale proceeds have given to the account of defendant no.1 by defendant no.3. In para No.11 there is allegations against Defendants No.2 to 4 that the transaction could not have been done without the active connivance of the officials of these companies. In the pleading there Suit No. 12/2016 Page 67 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
are general allegations against the defendant No.1 that defendant No.1 has forged and fabricated the signatures of the Plaintiff on the letter head of the company for reissuance of DIS and on the DIS. It is only in para No.9 it is alleged that signature of Director Shri Sunil Dhupar was forged by defendant No.1 and transferred the shares by Defendant No.1 either in his own account or in the account of Defendant No.3 The Plaintiff has pleaded that the signatures of the Plaintiff was forged. The signatures of the Plaintiff cannot be forged as the Plaintiff is artificial juristic person and it cannot act without the natural persons. It is only in para No.9 wherein it was alleged by the Plaintiff Company that the defendant No.1 has forged and fabricated the signature of Shri Sunil Dhupar. There were two Directors who were authorized by the Plaintiff Company for re issuance of DIS and in the DIS for transfer of shares. However, there is no specific allegation that the signatures of the second Director Shri S.C. Dhupar was forged and fabricated by defendant No.1 but there is general allegation that signature of the Plaintiff was forged.
It is apt to mention here that the Plaintiff, Defendants No.2 to 4 are artificial jurisdiction person therefore it was incumbent upon the Plaintiff to make the specific allegations against the employees/Directors/officials of Defendant No.2 to Defendant No.4 in view of the provisions of Order VI Rule 4 CPC, moreso when the entire investigation of the criminal case was Suit No. 12/2016 Page 68 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
completed and Charge Sheet was filed by the Economic Offences Wing on the complaint of the Plaintiff but the Plaintiff has failed to disclose such facts. The Plaintiff has filed this case just three days prior to prescribed period of Limitation and thus the Plaintiff was posted with sufficient facts but inspite of the same the Plaintiff has made general allegations against them.
Now, it is to be seen what evidence has been produced by the Plaintiff in order to prove that reissuance of DIS or the DIS (whereby the shares were transferred) was manufactured upon the forged and fabricated signature of Shri Sunil Dhupar the Director of the Plaintiff Company. The Plaintiff has examined PW1 Shri Sunil Dhupar but the Plaintiff has failed to produce the original DIS before this Court. It is admitted case of the Plaintiff that Original documents/DIS is in the Criminal Case but the Plaintiff has not even summoned and/or filed the Certified Copies of the DIS before this Court. Thus the original DIS has not seen the light of the day in this Court. The Plaintiff has not even examined any Expert Evidence on record to prove the allegations of forgery and fabrication by Defendant No.1. There is no evidence of the expert that the signatures of the Directors of the Plaintiff was forged and fabricated by defendant No.1. The Plaintiff through selfserving affidavit of PW1 has alleged that Defendant No.1 has forged the signatures of the Directors of the Plaintiff Company.
The defendant No.2 has led the cogent and convincing evidence of DW1 and DW2 to prove that officials of the defendant Suit No. 12/2016 Page 69 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
No.2 have acted bonafidely and after verification they have re issued the fresh DIS or cleared the DIS for transfer of shares. The PW1 in his cross examination has categorically admitted that there is no bar for defendant no.2 for reissuance of DIS even if the first DIS was totally unused.
The copies of the DIS by which shares in question were transferred were placed on record by Defendant No.2. However, the Plaintiff has not at all even cared to bring the DIS on the records either in Original or by way of certified copies. The Plaintiff has not even summoned the records from the Crime Branch or from the Court concerned where the criminal case was pending. The Defendant No.4 has summoned the record of Criminal Case from concerned Court but the Plaintiff has not got placed on record Certified Copies of DIS.
Furthermore, the Plaintiff has categorically admitted the signatures of the Directors of the Plaintiff Company in Exhibit DW 2/6 (Ex. P7) and Exhibit DW2/9 (Ex. P8) during the cross examination of DW1. The relevant portion of cross examination dated 23.02.2017 of DW1 is reproduced hereunder: "....It is correct that Ex. P8 bears signature of client i.e. Echo Holding at points 'A' and 'B'. It is correct that we had tallied these signatures with specimen signature maintained in our record. It is correct that on account opening form Ex. D1 the specimen signature of authorized signatories of the plaintiff company are point 'A' and 'B'. It is correct that both the signatures of D1 and Ex. P8 are the same. It is Suit No. 12/2016 Page 70 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
also correct that signature of the authorized signatories of the Plaintiff Company on Ex.P7 and specimen signatures on Ex.D1 are the same...."
The aforesaid suggestion clearly reveals that the Plaintiff has categorically admitted the signatures of Directors of the Plaintiff Company on the aforesaid DIS. Although in the same cross examination the Plaintiff again given suggestions that signatures on Ex.P7 and Ex.P8 are totally different from the signature on Ex. D1 which was denied by the witness. The Plaintiff has not been able to shake the testimonies of DW1 and DW2 on material particulars.
The perusal of the documents Ex. D4W1/1 and D4W1/2, it reveals that defendant No.1 has opened the Demat account with defendant No.4 in the year 2000 i.e. about 4 and half years prior to the alleged date forgery and fabrication committed by defendant No.1. The perusal of D4W1/3 (Colly.) further reflects that defendant No.1 was dealing with defendant No.3 much prior to the alleged date of Forgery and Fabrication and the defendant No.1 had not only dealt with defendant No.3 on the alleged shares but also various other shares. It was also revealed that defendant No.1 was independently doing the business of sale and purchase of shares for quite long not only with defendant No.3 but also with other companies. The defendant No.4 has no role except the defendant No.4 was the custodian of the demat account of defendant No.1 and the same appears to be opened after completing the entire formalities.
Suit No. 12/2016 Page 71 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
There is specific admission of the Plaintiff and Defendant No.2 that shares which were transferred to defendant No.3 were reversed back to the account of Plaintiff. The perusal of the record reveals that shares were transferred from the account of Plaintiff to defendant No.3 on 19.05.2005 and 30.05.2005. The reversal of said shares was immediately done by defendant No.3 from 11.06.2005 to 16.06.2005. It is also admitted by Plaintiff that defendant No.3 has paid the amount of shares, which the defendant no.3 has purchased from defendant to the account of defendant no.1. There is also categorical admission on the part of PW1 that the Plaintiff has received the monthly statements from defendant No.2 and in this manner the monthly statement of March, 2005 must have been received by Plaintiff Company in the month of April, 2005 and similarly in the succeeding periodical monthly statements. Admittedly the Plaintiff is a big Investor Company as per deposition of PW1.
The entire allegations of connivance and collusion of defendant No.1 with other defendants are based upon deductive and presumptive theory. The defendant No.3 has also relied upon the Judgment dated 12.05.2014 passed by the then Ld. ADJ14, District Central, Tis Hazari Courts, Delhi whereby the suit filed by Sh. Suresh Chander Dhupar (Director of Plaintiff Company) in his individual capacity against the defendants (who are the same defendants in the present case and even the numbering of the defendants are also same). The said suit was dismissed by the Ld. Suit No. 12/2016 Page 72 of 74 Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
ADJ, District Central. The facts of the said case are totally similar and identical except the details of the shares and the plaintiff. The relevant portion of said Judgment is reproduced as under: "There are no facts in the plaint which shows that any illegality was conducted by defendants no.2 & 3 while creating a separate client ID for defendant no.1. There are no pleadings that it was the connivance of defendants no.1,2 & 3 that the shares belonging to the plaintiff were transferred to his (defendant No. 1's) own account and transactions were fraudulent in nature and no consideration was even received by the plaintiff. Whatever the loss has been suffered by the plaintiff it is on account of his own negligence, there is no specific pleadings to show that there was connivance between defendants no.2, 3 & 4 except presumptive pleading to his ex co. The pleadings as to connivance between defendant no.1 and defendant No.2, 3 & 4 are presumptive in nature saying that these transactions were done fraudulently.
In the absence of any pleadings as to connivance of the officials of defendants No.2 & 3 with defendant No.1 and any impropriety having been conducted by defendant no.4 while accepting the money for the shares sold in the account being maintained with defendant no.4 of defendant No.1.
For the reasons mentioned above, the suit of the plaintiff is dismissed with no order as to cost."
Suit No. 12/2016 Page 73 of 74Echo Holdings Pvt. Ltd. V. Ram Kumar & Ors.
The said Judgment was not challenged by the Director of the Plaintiff Company. The said Judgment is relied upon by defendant No.3 which was exhibited as Ex.DW3/2.
I am fully in agreement with arguments advanced by defendants that the Plaintiff Company has failed to prove the forgery and fabrication on the alleged documents and further there is no interse collusion and connivance between the defendants.
Cumulatively, in view of the discussions as hereinabove, arguments advanced by the defendants and law cited above, the Plaintiff is not able to clear the coast regarding forgery and fabrication of the documents done by defendant No.1 and accordingly the issues No.1 to 3 and 7 are decided against the Plaintiff and in favour of the defendants.
RELIEF From the discussions, as adumbrated hereinabove, I hereby pass the following FINAL ORDER
(i) The suit of the plaintiff is dismissed.
(ii) The parties shall bear their own respective costs.
Decreesheet be prepared accordingly.
File be consigned to Record Room after due compliance.
Announced in the open court (ARUN SUKHIJA)
on 12/10/2018 ADJ07 (Central)
Tis Hazari Courts, Delhi
Suit No. 12/2016 Page 74 of 74