In
The Supreme Court of India Civil Appellate Jurisdiction Civil Appeal Nos.
3034-3036 of 2005
Maghendra
Pal Tyagi Vs Jayant Davar & Ors
JUDGMENT
Lokeshwar
Singh Panta, J.
1.
These appeals are directed against the judgment and order dated 10.10.2003 in
Misc. Application No.186 of 2000 (impugned order-1); order dated
14.07.2004 in Misc. Application No.178 of 2004 in M. A. No. 186/2000
(impugned order-2) and order dated 18.08.2004 in Misc. Application No.263 of
2004 in M. A. No.186/2000 (impugned order-3) passed by the Special Court
constituted under The Special Courts (Trial of Offences Relating to
Transactions in 2 Securities) Act, 1992 [hereinafter referred to as "the
Act"] at Bombay.
2.
The short facts leading to the present proceedings are as under:-The appellant
herein held 200 shares of Hero Honda Company - fourth respondent-company
herein. In and around September 2003, the appellant desired to dispose of the
said 200 shares, but he allegedly lost the same. On 21.09.1993, the appellant
got a police report registered in the Sihani Gate Police Station, Ghaziabad. On
or about 22.09.1993, the appellant approached and requested the fourth
respondent-company for issue of duplicate Certificates in lieu of his lost
shares along with all supporting documents, indemnity bonds and affidavits,
etc.
3.
On 05.01.1994, the fourth respondent-company got an Advertisement/Public Notice
published in Newspapers calling upon to file objections, if any, against issue
of duplicate Share Certificates to the appellant and also striking a note of
caution to the public at large not to deal with the shares so specified in the
advertisement. Having not received any objection from3 any one, the fourth
respondent-company on 03.02.1994 issued duplicate Share Certificates to the
appellant.The appellant transferred his shares in favour of Jayant Davar - the
first respondent herein, which were registered in his name by the fourth
respondent-company on 18.10.1994. The first respondent had been offered 50 Bonus
Shares by the fourth respondent-company, which ffer was profitably availed by
him. The first respondent sold/transferred 200 shares which he got from the
appellant and 50 Bonus Shares consequently acquired by him, but the fourth
respondent-company did not register the said transfer. This was done on the
asking of the CBI, who was investigating the Share Transfer Scam, and advised
the first respondent and the transferee to approach the Custodian - second
respondent herein. The fourth respondent-company asked the appellant to enforce
indemnity bond, but the appellant did not agree as the fourth
respondent-company had not suffered any loss, etc. as a result of the
transaction.
4.
The case of the first respondent before the Special Court was that he purchased
800 shares of fourth respondent- 4 company through its broker M/s. Jamnadas
Morarjee & Co. during the months of July-August, 1994 and thereafter the
said shares were sent for transfer to the Registrar and Share Transfer Agent of
respondent No. 3, i.e. MCS Limited. The shares were finally transferred in his
name on the basis of valid instruments of transfer and, accordingly, a ledger
folio No. 141982 has been allotted to him. The second respondent filed
Miscellaneous Application No. 186/2000 before the Special Court claiming 200
shares which were transferred in his name from the appellant and 50 bonus
shares in the ratio of 1:4 as issued by third respondent against those 200
shares. The first respondent stated before the Special Court that he had sold 250
shares in the open market through his share broker M/s. TRC Securities Pvt.
Ltd. in the month of May/June, 1997. Upon lodgment of the said 250 shares with
MCS Limited, they, vide their letter dated 26.06.1997 refused to
transfer/register the shares in the name of the lodger i.e. Morgan Stanley
Assets Management Inc., A/c Morgan Stanley Institutional Fund Inc.
Emerging Markets Portfolio. Subsequently, the 250 shares
were returned to first 5 respondent as `Bad Delivery' under two different
covering letters dated 26.06.1997 and 10.07.1998 respectively. MCS Limited
received a letter bearing No. 5696/Cus/Mob/UR- CBI/96 (533B) dated 29.02.1996
from the second respondent- Custodian regarding stop transfer of the shares in
favour of any person without permission of the Custodian. The MCS Limited also
enclosed copy of transfer deeds, share certificates and Custodian's letter
dated 29th February, 1996 along with their letter to the second respondent who
on going through the same, came to know that 117335 shares of fourth
respondent- company belonged to the Notified Persons of the group of Late
Harshad S. Mehta which were seized by CBI and remained in their custody. The
letter also revealed that Late Harshad S. Mehta and his group were notified by
the Custodian on 8.6.92 under the provisions of the Act and all properties
belonging to them stood attached simultaneously with the issue of the
notification and the fourth respondent-company was informed not to deal with
those shares in any manner including transfer, pledge, issue of duplicate etc.
and all corporate 6 benefits admissible on these shares may be held in abeyance
till the orders passed by the learned Special Judge.
5.
In view of the above stated circumstances, the first respondent requested the
fourth respondent-company to transfer the shares in the name of the buyer who
purchased the same in the open market.The fourth respondent- company vide their
letter dated 8th October, 1997 informed the first respondent that one Mr. Mahendra
Pal Tyagi - appellant herein was holding the said 200 shares under Ledger Folio
No. 128027 bearing Share Certificate Nos. 58193, 46706, 179855 which he claimed
having been lost and requested the fourth respondent-company to issue duplicate
shares in lieu of the aforesaid original lost share certificates. The
appellant also submitted the Police Report, indemnity bond, affidavit along
with the request letter to the fourth respondent-Company who issued
duplicate shares to the appellant under Share Certificate Nos.
191549-191552.The duplicate shares subsequently were lodged by the first
respondent for transfer in his name and, accordingly, the fourth
respondent-company 7 transferred the said shares on 18th October, 1994 in the
name of the first respondent.
6.
The fourth respondent-company thereafter received a letter dated 29th
February, 1996 from the office of the second respondent-Custodian whereby the
Custodian asked the fourth respondent-company to "stop transfer" of
certain shares including the shares which are the subject matter of these
proceedings and also held in abeyance all the benefits accruing on those shares
as the said shares were seized by the CBI at the time of raid laid on the
places of Late Harshad S. Mehta. The letter of 8th October, 1997 revealed that
the list furnished by the second respondent-Custodian includes original shares
of the appellant which he allegedly lost. The fourth respondent-company,
therefore marked "stop transfer" against the duplicate shares which
were transferred in the name of the first respondent and advised the first
respondent to approach the stock exchange through whom the first respondent
purchased those shares so that through proper channel, the introducing broker
as well as the share holder, i.e. the appellant could be asked to replace the
said shares 8 with good shares. The first respondent admitted that he
purchased 200 shares from the open market through their share broker and paid
the consultation thereof and thereafter the shares were also registered in his
name by the fourth respondent-company as per the provisions of the Companies
Act, 1956 and he had absolutely no knowledge about the duplicate shares being
issued in the name of the appellant by the fourth respondent-company. He
claimed that in the facts and circumstances narrated in the
application, first respondent is the real and only owner of these shares and,
accordingly, all corporate benefits accrued thereon since the date of
registration of the 250 shares in his name, be paid to him in the interest of
justice. By reasons of the impugned order dated 10.10.2003, the learned
Special Judge allowed Misc. Application 186 of 2000 filed by the first
respondent. It was directed:-"This application relates to 250 shares of
respondent no.3 company. It appears that the respondent no.4 who was holding
these shares had sold the shares on the Stock Exchange which were purchased by
the notified party. Taking advantage of the fact that the notified
9
party because of the notification could not apply for transfer of the shares,
the respondent no.4 applied for duplicate shares by making a misrepresentation
that he has lost the shares and received from the Company the duplicate shares.
Those
duplicate shares were again sold and they were now purchased by the applicant.
The principal prayer in the application is for lifting of attachment on these
250 shares. It is obvious that these 250 duplicate shares have been issued by
the Company because of misrepresentation made by the respondent no.4. By an
order dated 16th July, 2003, the respondent no.4 was directed to deposit in
this Court an amount of Rs.6,00,000/-The respondent no.4 has not obeyed this
order. In the affidavit filed by the respondent no.4, the explanation that has
been given by him is incapable of being accepted. There are no documents
produced in support of that explanation. It is thus clear that there is no
question of attachment of 250 shares of the respondent no.3 company being
lifted. The relief to which the applicant would be entitled is to recover from
the respondent no.4 the value of the shares. It is clear from the report
submitted by the Custodian, that these shares were purchased by the Applicant
in the month of June 1994 and payment for it was made by cheque dated 6th July
1994 and the amount was Rs.2,94,400/-. The applicant therefore would be
entitled to a decree against the respondent no.4 in1 this amount. The
application therefore is disposed off in the following terms. The respondent
no.4 is directed to pay to the applicant an amount of Rs.2,92,400/- with
interest at the rate of 18% p.a. from 6th July 1994 till realization.
Application is disposed off."
7.
Being aggrieved, the appellant filed Review Application being Misc. Application
No.178 of 2004 under clause (f) of sub-section (5) of Section 9-A of the Act
before the learned Special Judge. The said application came to be rejected on
14.07.2004 vide order, which reads as under:-
"Called
for hearing and Final Disposal None for the applicant
Mr.
Modi i/b Yogesh Thakur for Respondent No.1 Mr. J. Chandran i/b
M/s P.M. & Mithi & Co. for the Custodian/Respondent No.2 Mr. V.M.
Singh i/b Arun Mehta for Respondent No.4 Coram D.K. Deshmukh, J.Judge, Special
Court Dated 14th July, 2004 P.C.1 Matter called twice. None present for the applicant.
Application rejected."
8.
Again, the appellant preferred Misc. Application No.263 of 2004 for restoration
of the Review Petition, which was dismissed and the following order came to be
passed on 18.08.2004:-
"Even
assuming that due to mistake of the lawyer, lawyer could not remain present and
therefore, the review petition was rejected, after having heard the learned
counsel appearing for the Applicant on the review application, I find that
there is no reason to review the order dated 10th October, 2003.
Applicant was Respondent No.4 in Misc. Application No.186 of 2000. By order
dated 16th July, 2003, he was directed to deposit an amount of Rs.6 lakh in the
court. He did not obey that order. Therefore, the Applicant is not entitled
to any indulgence from this court. Misc. Application disposed of."
9.
Hence, the appellant has assailed the above-said three orders before this Court
in these appeals preferred under Section 10 of the Act.
10.
During the pendency of the appeals in this Court, the legal representatives of
late Harshad Mehta are substituted as respondents Nos. 3(i), (ii) and (iii).
11.
Mr. Abhishek Vikas Singh, learned counsel appearing on behalf of the appellant,
in assailing the orders of the learned Special Judge, inter alia, contended
that the learned Special Judge did not appreciate the fact that the original
shares were not valid and legal and had come to the hands of the notified
person (deceased Harshad Mehta) in illegal and wrongful manner and were never
transferred and registered in his name in accordance with law and as such, the
appellant could not have been penalized for the acts and deeds of a third
person, who had acquired the shares in illegal and clandestine manner. He
submitted that the action of the appellant being bona fide and reasonable,he
had faced loss at last stage, even when the duplicate shares were already stood
transferred in his name in due course after following all legal procedures1 and
due application of law. The learned counsel then contended that the orders of
the learned Special Judgeimpugned in these appeals have resulted in manifest
error and miscarriage of justice to the appellant, which deserve tobe set
aside.
12.
Mr. Rohit Aggarwal, learned counsel appearing on behalf of the first
respondent, on the other hand, would inter alia submit that the learned Special
Judge passed an order based upon the material on record which would reveal that
theappellant had committed a fraud of selling 200 shares on the Stock
Exchange and thereafter applying to the fourthrespondent-company for
duplicate shares on the plea that the said shares had been stolen. He also
submitted that thelearned Special Judge had not burdened the appellant with payment
for the entire amount of 800 shares as alleged, but infact has directed payment
of Rs.2,92,400/- with interest thereon, which is the value of 250 shares only.
13.
Mr. Subramanium Prasad, learned counsel appearing on behalf of second
respondent-Custodian, would contend that the appellant had sold the shares in
question to late Harshad 1 Mehta, a notified person under Section 3(2) of the
Act and deceased Harshad Mehta could not apply for transfer of those shares,
the appellant, on a misrepresentation that he had lost the shares, applied for
and got duplicate shares from the fourth respondent-company, which were also
sold by the appellant to first respondent. Learned counsel for the
respondents, in nutshell, supported the orders of the learned Special Judge which,
according to them, cannot be found faulty or invalid on any grounds whatsoever
as alleged by the appellant.
14.
We have given our thoughtful and anxious consideration to the respective
contentions of the learned counsel for the parties and perused the material on
record. The contentions of the learned counsel for the appellant at the first
blush sound attractive, yet we are afraid to accept the same.
15.
The undisputed facts are that the first respondent purchased 800 shares
including 200 shares (the subject matter of the proceedings) of fourth
respondent-company in open market in the months of July and August, 1994
through its share broker M/s. Jamnadas Morarjee & Co., C-4 Defence 1
Colony, New Delhi-24. The fourth respondent-company allotted 50 bonus shares to
him against the said 200 shares in the ratio of 1:4. In all, the dispute before
the learned Special Judge was limited to 250 shares. Late Harshad S. Mehta, who
was a party - third respondent herein, is represented through his legal representatives
Nos. 3(i), (ii) and (iii) respectively. Indisputably, deceased Harshad Mehta
was a notified person under sub-Section (2) of Section 3 of the Act and the
appellant transacted the said shares with the deceased Harshad S. Mehta entered
after the first day of April, 1991 and on or before 1st June, 1992, the
stipulated period covered under the Act. Claim submitted by the first
respondent before the learned Special Judge would arise out of the transaction
of the said 250 shares between Late Harshad S. Mehta and the appellant during
the aforesaid period. The entire properties belonging to the notified party on
the day of notification would stand attached in terms of Section 3(2) of the
Act. The appellant knowing full well that he has already sold the shares to
late Hashad S. Mehta, he made a false representation to the
fourth respondent-company that as the1 appellant had lost original shares,
therefore, duplicate shares were allotted to him which stood in his name since
late Harshad S. Mehta had not applied for change of the name. The whole
exercise was done by the appellant on the basis of his mis-representation. This
Court in L.S. Synthetics Ltd. v. Fairgrowth Financial Services Limited &
Anr. (2004) 11 SCC 456, held that Section 3(3) of the Act should be literally
construed and all properties belonging to the notified party on the date of
notification would stand attached. 16. In terms of the provisions of
sub-section (3) of Section 3 of the Act, the properties belonging to deceased
Harshad S. Mehta being a notified person stood attached. Such attachment
being automatic, no finding was required to be arrived at that the same had
been acquired during the notified period. In Tejkumar Balakrishna Ruia v. A.K.
Menon(1997) 9 SCC 123, this Court held that the terms of sub- section (3)
Section 3 are clear that the property that belongs toa notified person stands
attached simultaneously with the issue of notification that makes him a
notified party. It is said that the words `on or from the date of notification'
indicate the 1 point of time at which the attachment takes effect; this
isreiterated by the words `shall stand attached simultaneously with the issue
of the notification'. Further that this also indicates that no special
notification or order in regard to the attachment is necessary. In the latest
judgment of this Court in Ashwin S. Mehta & Ors. v. Union of India &
Ors. (2006) 2 SCC 385, this Court reiterated that property, be it shares,
dividends and bonus and rights shares that belongs to a notified person would
also be attached property.
17.
In this view of the matter, learned Judge of the Special Court has rightly
concluded that 200 duplicate shares wereobtained by the appellant by
misrepresentation. The said 200 shares plus 50 Bonus shares were attached by
the CBI in proceedings initiated against deceased Harshad S. Mehta, therefore,
the attached shares of the fourth respondent- company could not be transferred
to any party. The record of second respondent-Custodian would reveal that 250
shares were purchased by the appellant in the month of June, 1994 and payment
of Rs.2,92,400/- was made by cheque dated 6th July, 1994. In these
circumstances, the learned Special 1 Judge directed the appellant to pay to the
first respondent an amount of Rs. 2,92,400/- with interest at the rate of 18%
per annum from 6th July, 1994 till the date of realization.
18.
In the backdrop of the facts and circumstances and in the light of the
provisions of law, in our view, the orders of the learned Special Judge
impugned in these appeals do not suffer from any infirmity or illegality
warranting interference in exercise of appellate power.
19.
For the reasons aforementioned, we do not find any merit in these appeals which
are dismissed, accordingly. Parties are left to bear their own costs.
........................................J.
(C. K. Thakker)
........................................J.
(Lokeshwar Singh Panta)
New Delhi, June 05, 2008.
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