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