ORDER
K.K. Balu, Vice Chairman
1. M/s. Oriental Insurance Company Limited has filed this petition under Section 111A of the Companies Act, 1956 (“the Act”) seeking directions that the petitioner is entitled to have their name inserted in the register of members of M/s. MRF Limited (“the Company”) as holder of 50 shares under certificate No. 198646 in relation to distinctive Nos. of shares of 1201039 to 1201045 and 2287195 to 2287203 jointly held in the name of Balkrishna Laxman Oroskar (respondent No. 2) and Meera Balkrishna Oroskar (respondent No. 3) and certificate No. 182716 in relation to distinctive Nos. of shares of 2923420 to 2923422, 3278336 to 3278344, 1736473 to 1736477, 1200855 to 1200857,2283545 to 2283548 and 605001 to 605010 jointly held in the name of Meera Balkrishna Oroskar (respondent No. 3) and Vishwesh Balkrishna Oroskar and to issue duplicate certificates in respect of these shares and to pay all accrued dividend and benefits to the petitioner.
2. The facts in brief are that the petitioner in the usual course of its business insured M/s. Pinakini Share and Stock Brokers Limited (“Insured”) a member of the National Stock Exchange under insurance policy No. 120000/48/97/001 to cover certain losses suffered by the insured. The Insured purchased 50 shares of the Company on 9-7-1997 under order No. 96974 and trade No. 193474. The Insured after fulfilling the payment obligation handed over the share certificates along with the transfer deed duly executed by the respondent Nos. 2 and 3 with shares of other companies to the Elbee Courier for transmitting to their Hyderabad office. However, the Elbee Courier failed to deliver the share certificates as the same were lost. In this connection, the Elbee Courier filed a complaint with Cuffe Parade Police Station, Mumbai. The Insured simultaneously filed a civil suit in O.S. No. 1826 of 1997 on the file of the City Civil Court, Hyderabad against the Company and obtained an order of ad interim injunction not to transfer the shares and communicated the same to the Company by letter dated 24-3-1997 as well as lodged the insurance claim with the petitioner. The Company by its letter dated 5-5-1998 communicated to the Insured about marking stop transfer of shares. The petitioner after appointing the surveyor and making internal enquiries paid a sum of Rs. 3,69,662 to the Insured in full and final settlement of the claim. The Insured had executed a letter of subrogation-cum-special attorney dated 2-3-2000 and transferred all the ownership rights, title and interest in the shares covered under the claim, which includes 50 shares of the first respondent Company. Thus, the petitioner has acquired beneficial ownership of the said shares and is entitled to get duplicate share certificates. The petitioner thereafter, appointed Deear Investor’s Grievances Services Limited (“Deear”) to pursue with the Company to obtain duplicate share certificates. The Company on submission of the application for obtaining the name and address of transferors and the details of lodgers if any, by its letter dated 28-9-2000 furnished complete information about the transferor and lodger. Thereafter, the Deear submitted an application to the respondent Nos. 2 and 3 explaining them the facts of the case to execute transfer deeds and furnish no objection letters for the purpose of issuance of duplicate share certificates. The respondent Nos. 2 and 3 by their letter dated 13-10-2000 addressed to the Company conveyed no objection and executed transfer deed. The respondent No. 4 lodged the share certificates with the Company for transfer in its favour through its custodian and constituted attorney viz. Hongkong and Shanghai Banking Corporation Limited (HSBC) and it is learnt from the Company that it withheld the documents on account of the status quo order made in O.S. No. 1826/1997 by the City Civil Court, Hyderabad. The Deear also submitted an application to the HSBC by letter dated 6-10-2000 explaining them the full facts of the case and requested their no objection for issuance of duplicate share certificates by the Company. The respondent No. 4 by their letter dated 13-10-2004 requested certain documents to proceed further in the matter. The Deear by their letter dated 27-10-2004 requested the Company to furnish copies of transfer deeds and copy of objection memo under which shares were returned under objection to the respondent No. 4. The Company vide its letter dated 14-7-2005 reported that since the civil suit in O.S. No. 1826/1997 has been withdrawn it had no other option except to return the documents to the respondent No. 4 and if they resubmit the documents with due rectification, it was bound to give effect the transfer, in the absence of an order of prohibition obtained by the petitioner. Hence the petition.
3. Shri S. Srinivasan, Practicing Company Secretary and authorised representative of the Company submitted that since the petition has been presented after the expiry of two months as envisaged under Section 111A(3) of the Act, the petition is not maintainable. Further, the Bench has no jurisdiction to entertain the petition in view of the relief of declaration of title to shares sought therein. The respondent Company is not concerned with the purchase of shares and loss of shares by the petitioner and the consequent actions thereon. HSBC lodged 50 shares of the Company seeking transfer in favour of Morgan Stanley Institutional Fund Inc. Emerging Markets Portfolio and the Company returned the documents with the objection memo to enable them to lodge bad delivery claim. The Company did not give effect to transfer as the City Civil Court, Hyderabad in O.S. No. 1826/1997 directed, by way of an interim order, the Company to maintain status quo. The suit has been subsequently dismissed by the City Civil Court, Hyderabad, as not pressed and hence the Company returned the documents to the lodger, HSBC in order to re-lodge the documents duly rectified to give effect to the transfer. The issue of duplicate certificates does not arise as the original share certificates are very much available with the Company. The question of transfer of the shares in favour of petitioner does not arise, as the transferee on record is only M/s. Morgan Stanley Institutional Fund Inc. Emerging Markets Portfolio. However, without prejudice to the above contentions, the Company will abide by the orders of this Board.
4. According to the petitioner, by virtue of Sub-section (3) of Section 111A of the Act, the Company Law Board (CLB) may on an application made by a Depository, Company, Participant or Investor or the Securities and Exchange Board of India, if the transfer of the shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 or Regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 or any other law for the time being in force within two months from the date of transfer of any shares or debentures held by a depository after such enquiry as it thinks fit, direct any Depository or Company to rectify its register or records. Therefore, the rectification envisaged under Section 111A(3) of the Act would arise only on account of transfer of shares and the rectification on any other ground can be decided by the CLB under Section 111A read with Section 111 of the Act as decided in Finolex Industries Ltd. v. Anil Ramchand Chhabria [2000] 26 SCL 233 (Bom.). The CLB has powers to decide the title of the shares under Sub-section (7) of Section 111A of the Act according to which, the provisions of Sub-sections (5), (7), (9), (10) and (12) of Section 111 will apply to the proceedings initiated under Section 111A. Sub-section (7) of Section 111 empowers the CLB to decide the question relating to the title of any person who is a party to the application to have his name entered in, or omitted from the register and to decide any question, which it is necessary or expedient to decide in connection with the application for rectification. Under Section 27 of the Sale of Goods Act, a buyer of stolen property cannot get better title than the seller as the seller, who had sold petitioner’s stolen shares was not authorised and hence the respondent No. 4 cannot have any claim on the impugned shares even if their claim is not settled. The respondent No. 4 is aware of the present proceedings, but not chosen to represent before CLB. In fact, the respondent No. 4 enquired by Email dated 21-7-2006 about the next date of hearing and the petitioner intimated the next date of hearing as 9-8-2006. A Copy of the petition and other documents were forwarded to the respondent No. 4 on 6-2-2006 and the same were received by it. By a letter dated 24-3-2006, the petitioner’s authorised representative intimated respondent No. 4 the date of hearing as 7-4-2006 at 2.30 p.m. and by yet another letter dated 26-5-2006 intimated the next date of hearing as 13-6-2006 at 2.30 p.m. In these circumstances, the petitioner sought for appropriate directions.
5. I have considered the pleadings of and submissions made by the authorised representative of the petitioner. The respondent Nos. 2 and 3 by their letter addressed to the Bench Officer, CLB, Chennai received on 30-6-2006 conveyed no objection to transfer the shares to bona fide owners as they sold the shares for consideration and expressed their inability, on account of old age, to attend the hearing before the CLB. Before deciding the petition on merits, the issue of limitation is being dealt with by me. In terms of Section 111 A(3) of the Act, the CLB may on an application made by a Depository, Company, Participant or Investor or Securities and Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of Securities and Exchange Board of India Act, 1992 or Regulation made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1995 or any other law for the time being in force, within two months from the date of transfer of any shares or debentures held by a depository, which applies to shares kept in dematerialised form or from the date on which the instrument of transfer or the intimation of the transmission was delivered to the Company, which applies to shares in physical form as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or records. In the former case, an application for rectification lies after the transfer of shares takes place. In other words, the transfer of shares kept in fungible form is instantaneous. In the latter case since the share certificates are sent for transfer in physical form ie. share certificates along with transfer deed, an application for rectification can be made either during the pendency of the transfer or after the transfer is effected, however, within two months from the date on which the instrument of transfer is delivered to the Company. In the present case, it has come to the knowledge of the petitioner that the respondent No. 4 has lodged the impugned shares for transfer in its favour as early as September, 2000. Nevertheless, an order of injunction made in O.S. No. 1826 of 1997 before the City Civil Court, Hyderabad operated against the Company from effecting the transfer in respect of the impugned shares and therefore, the plea of limitation raised on behalf of the Company becomes redundant. As regards the plea of the first respondent Company that the title of the shares shall be decided first before issue of share certificates the CLB is empowered to decide the title of the shares under Sub-section (7) of Section 111A read with Sub-section (7) of Section 111 of the Act. There is no doubt that the petitioner has become entitled to shares on discharging the loss suffered by the Insured. The respondent No. 4 cannot have any title on the shares, since in terms of Section 27 of the Sale of Goods Act, a buyer of stolen property cannot get better title than the seller, more so when the seller himself was not authorised to sell the impugned shares. The respondent No. 4 opted to remain ex parte in spite of dispatch of the notice on 21-3-2006, 22-5-2006 and 13-7-2006 for the hearings held on 7-4-2006, 13-6-2006 and 9-8-2006 respectively. The respondent No. 4 has not chosen to file a reply to the petition, in spite of the opportunity afforded by this Bench. The respondent Nos. 2 and 3 have no objection for transferring the impugned shares in favour of the bona fide owners. In these circumstances, by virtue of this order the Company shall register these shares in the name of the petitioner and rectify the register of members by substituting the name of the petitioner in the place of the respondent Nos. 2 and 3 and thereafter shall issue the original share certificates in its possession by making necessary endorsement on the reverse of the certificate. With these directions the petition is disposed of. No order as to costs.