Rahul Subodh
Windoors Limited. Vs. A.K. Menon & ANR [1999] INSC 128 (6 April 1999)
G.B.Pattanaik,
S.R.Babu RAJENDRA BABU, J. :
The
second respondent was notified under Section 3(2) of the Special Court (Trial of Offences Relating To
Transactions In Securities) Act, 1992 [hereinafter referred to as the Act] as a
person involved in offences relating to transactions in securities during the
period mentioned therein. Respondent No. 1, who is the Custodian appointed
under Section 3(1) of the Act, on inquiry with the appellant, came to know that
they had received a cheque for a sum of Rs. 20 lakhs from the second respondent
for purchase of certain shares, without, however, mentioning the names of the
ten shareholders to whom the shares were to be issued. The appellant claimed
that they had allotted and sent the necessary share certificates to the second
respondent and they also sent photocopies of the share certificates thereof to
the Custodian. The Custodian, by letter dated March 28, 1994, informed the appellant that the share certificates would
be the property of the second respondent and would stand attached and there
should be no transfer in respect of these shares. The Custodian on September 27, 1994 filed an application before the Special Court under the Act for return of a sum
of Rs. 20 lakhs along with interest. It was brought out in the proceedings
before the Special
Court that by a
letter dated November
5, 1991 the appellant
informed the second respondent that shares of their company worth Rs. 20 lakhs
were to be sold.
On November 13, 1991 the second respondent sent a cheque
for a sum of Rs. 20 lakhs and on November 15, 1991 the appellant forwarded to the
second respondent 15 applications for purchase of shares on buy-back basis. A
resolution was made on November
15, 1991 at the
meeting of the Board of Directors of the appellant to allot and issue shares to
the investors and to complete formality and physical allotment in due course.
On November 23, 191 the appellant sent to the second
respondent application forms so that they may be filled up by its clients. The
claim put forth by the appellant is that they had allotted shares to the second
respondent and that they had forwarded to the second respondent the
certificates for 2 lakh shares. But the second respondent claimed that no such
share certificates were ever forwarded by the appellant to them and their claim
is that no allotment had been made at all. It was argued before the Special
Court that in the background that the allotment had been accepted by the
Custodian in letter dated March 28, 1994 and, therefore, the only claim of the
Custodian can now be in respect of the share certificates and that Rs. 20 lakhs
have been paid towards subscription for shares, the Custodian cannot now claim
back the same.
The Special Court rejected this contention. The Special Court came to the conclusion that there
has been no allotment of shares at all inasmuch as there can be no allotment of
shares in blank and in the copies of the share certificates produced before the
Special Court no names have been entered. No
application had been filed by the second respondent in terms of Section 41(2)
of the Companies Act agreeing to become a member of the company and his name be
entered in the Register of Members. On examination of the Register of Members,
the Special Court found that there were certain
suspicious circumstances which clearly indicated the fact that the second
respondent had never made an application in writing for allotment of shares.
The Special Court further examined the matter with reference to the distinctive
numbers of the shares which revealed a lot of suspicion to the effect that
their names in the Register of Members were made sometime after the letter was
sent by the Custodian only to over-come the difficulty of an application being
made by him and long after the second respondent was notified. Therefore, the
allotment is purportedly to be made in his name without any application in
writing and only with a view not to return the money belonging to the notified
party. Further, there is no intimation to the Registrar of Companies either for
filing a return of the statement stating the number, the nominal amount of the
shares, the names, addresses, occupation of the allotees and the amounts, if
any, paid or due and payable on each share.
Thus
on the basis of these circumstances and certain other attendant circumstances,
the Special Court came to the conclusion that there was no allotment of shares
and it is not now open to the appellant to make such an allotment of shares
and, therefore, it directed the repayment of the sum of Rs. 20 lakhs with
interest. Alternatively, the Special Court
held that the sale/purchase of shares was on a buy-back basis and it was only
an arrangement for financing and even on that basis the price must be the
original price plus some amount for interest at a reasonable rate and that must
be repaid. In conclusion, the Special Court
directed the appellant to pay the Custodian for and on behalf of the second
respondent a sum of Rs. 20 lakhs together with interest thereon @ 18% per annum
from November 13, 1991 till payment. Challenging this
order several grounds have been raised in the appeal but at the time of hearing
only two contentions are put forth before us by the learned counsel for the appellant.
In the first place, he contended that the Special Court had no jurisdiction to entertain the application of
respondent No. 1, the Custodian, since the matter did not relate to any offence
contemplated under Section 3 of the Act. The learned counsel drew our attention
to the scheme of the Act to impress upon us that the Special Court does not
have any jurisdiction to entertain an application for declaration to the effect
that a sum of Rs. 20 lakhs in question belong to the second respondent. Section
7 of the Act provides for the jurisdiction of the Special Court in respect of transaction for any
offence referred to in Section 3(2) of the Act and bars the jurisdiction of any
other court. If the matter stood thus, the contention put forth on behalf of
the appellant perhaps needs further examination. Now after the insertion of
Section 9A with effect from 25 January, 1994 the Special Court exercises the
jurisdiction of a civil court in relation to any matter or claim (a) relating
to any property standing attached under Section 3(3) of the Act, and (b)
arising out of transactions in securities entered into after the Ist day of
April, 1991 and on or before the 6th day of June, 1992, in which a person is
notified under Section 3(2) is involved as a party, broker, intermediary or in
other manner. Sub-section (3) of Section 9A bars the jurisdiction of other
courts in respect of these matters. Therefore, the Special Court is the only court which can inquire
into and deal with the matters of this nature where the transaction covered by
Section 9A or property standing attached under Section 3(3) is involved and,
therefore, we think the first contention urged on behalf of the appellant is
plainly misconceived and stands rejected. The second contention put forth on behalf
of the appellant is that the shares are granted and, therefore, on the
allotment of shares the money does not belong to respondent No. 2 but to the
appellant. In the narration of facts made earlier while referring to the
proceedings in the Special
Court out of which
this appeal arises we have stated the various circumstances taken note of by
the Special Court in not accepting that there had
been any allotment of shares. A few of these circumstances are firstly, there
can be no allotment of shares to unknown persons; secondly, allotment can be
made to a person who becomes a member of the company when an application is
made to that effect, and thirdly, no application was made to the company by the
second respondent in that regard was forthcoming. Cloud of doubts was cast upon
the entries in the Register of Members and the distinctive numbers of the
shares and, therefore, the finding of fact recorded by the Special Court that
there had been no allotment at all and it was sought to be made only after the second
respondent was notified under the Act to avoid payment of money of a sum of Rs.
20 lakhs cannot be seriously disputed. We find no good reason to interfere with
the said finding and the second contention urged also stands rejected. The Special Court was also justified in noticing that
the transaction between the parties was really a financial arrangement with the
buy-back agreement and even on that basis a sum of Rs. 20 lakhs with interest
can be ordered to the paid to the Custodian. We cannot take any exception to
this view either. Inasmuch as the appellant has failed in both these
contentions, there is no merit in the appeal and the same shall stand
dismissed.
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