BEFORE THE COMPANY LAW BOARD, WESTERN REGION BENCH, MUMBAI

 

 

                                                                                Present:Justice A.K. BANERJI,CHAIRMAN

                                                                         Shri C.R. DAS, MEMBER     

 

In the matter of Companies Act, 1956                                       Sec 111A

AND

In the matter of Sham Sunder Kukreja                                      Petitioner

                                    V/s

In the matter of M/s Hindustan Lever Limited having its registered office at Hindustan Lever House, 165-166 Backbay Reclamation, Mumbai-400 020   -        Respondent No.1

 

Shri Jayantilal Shah                                                                               Respondent No.2

Shri Sharad Agarwal of Sharad Agarwal and Company             Respondent No.3

Shri Pramod Kumar Saraf                                                                     Respondent No.4

Shri Nirmal Kumar Chirania                                                                  Respondent No.5

Shri Prem Prakash Chokhani                                                                Respondent No.6

 

Present on behalf of the Parties

 

Shri R.K. Gupta, Advocate for petitioner

Shri Ajay Kumar, Practicing Company Secretary for Respondent No.1 company

Shri Jayantilal Shah, Respondent No.2 in person

 

O  R D E R

(Finally heard on 20.10.2000)

 

            The petitioner has filed this petition under Sec.111A(3) of the Companies Act,1956, inter alia, seeking relief to decide and adjudicate matters relating to the transfer of 370 equity shares of erstwhile Brooke Bond Lipton India Limited (hereinafter referred to as BBLIL) and entitlement of allotment of the shares by Hindustan Lever Limited (hereinafter referred to as HLL) in lieu thereof with other consequential reliefs and to declare the transfer of 370 equity shares in the name of Respondent No.2 as void and illegal and to issue orders and directions for rectification of register of members by registering/restoring the name of the petitioner and the first named joint holder as rightful and lawful owners of 370 equity shares of erstwhile BBLIL.

 

2.                  The brief facts of the case as set out in the petition are as under:-

The petitioner is the original allottee and absolute owner alongwith first named joint holder, Shri Naresh Chander Dhawan, of 370 equity shares of erstwhile Brooke Bond Lipton India Limited, since merged with Hindustan Lever Limited.  The petitioner had sent seven share certificates (comprised of 370 equity shares in all), alongwith two separate letters stapled together each dated the 15th November, 1996 on 18th November,1996 for the purpose of (I) splitting one share certificate (No 6344) of 100 Equity Shares into two Certificates of 50 Equity Shares each and (ii) the remaining six share certificates along with first and Second and Final calls' receipted notices for endorsement thereon by BBLIL.  The above said letter and documents were received by the said company on 19th November, 1996.  These Share certificates were never received back from the company despite petitioner's letters dated the 9th December,1996, 21st January, 1997, 31st January, 1997, 3rd/4th March, 1997, 17th March,1997 and the 24th/26th May,1997.  As per Company's intimation conveyed vide its letter dated the 19th Sept,1997, it came to notice that these shares were illegally and unlawfully transferred on 23rd April, 1997 by BBLIL, in favour of Respondent No.2 on the basis of illegal and invalid Instruments of Transfer despite 'stop transfer' instructions of the petitioner to the company vide his letter dated the 17th March,1997. It is also stated that the said seven share certificates lodged by the petitioner with the company had thus been pilfered/stolen by the Staff of the company and surreptitiously canalized by the officers of the company illegally and unauthorisedly to persons of their choice for their own use and advantage resulting in the ultimate transfer of the shares in favour of the Respondent No.2. The petitioner and the first named joint holder had never signed and executed any Instrument of Transfer in favour of any third person and the question of delivery of these share certificates could not have arisen, as the same were already lying deposited with the company.  The transfer was effected clearly in contravention of the provisions of Sec 108 of the Companies Act, 1956 read with SEBI Guidelines and Circulars issued by the Government, Securities and Exchange Board of India Act, 1992 or Regulation made thereunder, and other Acts in force, and hence this petition.

3.         Initially the petition was filed under Sec.111 of the Act..  However, as per directions of this Bench the petitioner has filed amended petition under Sec.111A of the Act, and Respondents 2 to 6 were impleaded as parties. The  amended petition was also served on all the respondents. The first respondent (HLL) has filed a short reply to the appeal  and has stated  that the petition filed by the petitioner is barred by limitation in as much as the said 370 shares of BBLIL in question were transferred in the name of the Respondent NO.2 on 23rd April, 1997 whereas the instant petition was filed by the petitioner on 15th April, 1999 i.e. after a delay of twenty two months. Further that the allegations made by the petitioner involved complicated  question of facts and law and such issues cannot be adjudicated upon on the basis of documents made available by the petitioner, but could be decided only on trial by evidence, by a Civil Court,  and the petition be dismissed on the grounds of not being maintainable in law and/or facts.

4.         The petitioner has submitted its rejoinder and has inter-alia stated that the subject matter of the petition is a case of forged transfer which can pass no title and is void.  The Respondent No.1 is duty bound to rectify the register of Members by entering the name of the first named shareholder and the petitioner as before being the original allottees and cancel the names of the transferee-respondent No.2.  The petitioner also stated that the transferor company - BBLIL had abdicated in its duty to  refuse to register the transfer of shares on the additional ground that even the date and place of execution, specimen signatures of the transferee-Respondent No.2, non cancellation of share transfer stamps affixed on those instruments of transfer, date of presentation etc. were not communicated to the Respondent  No.2 vide its letter dated 28.2.97 as well totally ignored the stop transfer instructions of the petitioner intimated to the company vide its letter dated 17.3.97. That in the absence of any period prescribed for making an application under Sec.111(4) for rectification, the petition of the petitioner would not suffer any bar of limitation by virtue of the applicability  of the provisions of Sec.111A sub-section (5) & (7) of Companies Act,1956 .  It is further submitted that erstwhile BBLIL had transferred the shares on 23rd April, 1997, intimation thereof was given to the petitioner vide Respondent company's letter dated 19th Sept. 1997.  The transfer was effected in contravention of the express provisions of Sec.108 and other applicable provisions of Companies Act, 1956 and other Acts and the name of the transferee - Respondent No.2 has been entered in the register of members without sufficient cause.  The petiionr and the first named shareholder had never lodged/executed and signed any instruments of transfer in favour of any person or third party, and/or delivered any share certificate with any blank transfer form or otherwise at any relevant time either before or after 23.4.1997 in respect of 370 equity shares of BBLIL.

5. The Respondent No.2 Shri Jayantilal H.Shah, has filed his reply vide affidavit dated 7th Sep.1999 in which he has stated that Mr.Prem Prakash Chokhani, prorietor of M/s Jwala Prasad Saraf, main share and stock broker, owned Rs.382500 to him and his other family members.  The said Prem Prakash Chokhani gave 2010 equity shares along with signed transfer deeds of erstwhile BBLIL against the amount recoverable from him and his wife along with the affidavit confirming that he is the owner of the said shares and the same are good for delivery. He has further stated that he has sent the said shares alongwith the 43 share transfer forms duly signed by the transferor to the Company BBLIL for verification on 30.1.97. The Company BBLIL vide letter dated 28.2.97 informed him that the signatures of some of the Transfer Deeds does not tally fully with the record and returned back to him the said shares along with the transfer deeds. He returned the said transfer form received  from the company to Shri Prem Prakash Chokhani, who gave him the fresh 7 transfer deeds for the said 370 equity shares of the company duly signed by the then transferor, (the petitioner) which were duly notarized by the Notary Public.  The same were sent for transfer and registration in the name of the Respondent No.2, and received back by him duly transferred in his name vide Company's letter dated 23rd April, 1997. The Respondnet no.2 further stated in the said affidavit that on merger of the company BBLIL with HLL, he received the shares of HLL in lieu of his shareholding in the company as per the scheme of amalgamation approved by the Hon'ble Court.

6.         The Respondent No.3, Mr Sharad Agarwal, proprietor of Sharad Agarwal & Company, has stated in his affidavit dated 3rd August, 1999 that although the stamp has been used in the name of Sharad Agarwal andCompany on the said purported transfer deeds but the same are forged.  It is further stated that they had not been a party to the subject transaction and has been made  a party unnecessarily.  Further Sharad Agarwal and Company has been converted into the Limited Company namely Sharad Agarwal Broking Service Private Limited wef 9.9.96, much before the purported transfer.

7.         The respondent no.4 Mr Pramod Kumar Saraf son of Late Keshar Deo Saraf has inter-alia stated by his affidavit dated 4.9.99 that he is the proprietor of Jwala Parsad Saraf.  That as the firm sustained huge losses and damages due to downfall in business and as a result thereof wef 24.12.92 the firm had to close its business of dealing and purchasing and/or transacting in shares and also after withdrawal of the said code number the firm became a non member of Calcutta Stock Exchange and from that date the firm at no point of time entered into any transaction for sale or purchase of shares from any concern or any person.  Respondent No.4 categorically denied that at any point of time he was in active connivance, collusion and in conspiracy with the staff, officer of BBLIL  as falsely alleged or at all.  At no point of time any transfer deed was presented for embossment by him and also there was no occasion of such presentation of the alleged transfer deed to him for his embossment as he has completely left the business.  He further stated that if any seal of his firm or signature appear on the alleged transfer deed/s, those are forged, false and manufactured by some unscrupulous persons behind his back and without his knowledge or consent.  The issue involved in the petition is particularly arising between the petitioner and the Respondent No.2 and in view of such fact he prayed to strike off his name/his firm's name from this case as he is not a necessary party.

8..        Respondent No.5 Nirmal Kumar Chirania who is alleged to be a witness of the signature of the transferors has not submitted any reply to the appeall.

9..    The matter was finally heard on 20.10.2000 when the Counsel for the petitioner,Authorised representative of the respondent no.1 and Shri Jayantilal Shah (Respondent No.2) were heard at length.  The hearing was concluded on the same date and order was kept reserved.  However, the contesting parties were directed to submit written arguments which were submitted though belatedly.

10. Shri R.K. Gupta Advocate appearing for the petitioner while reiterating the averments made in the petition submitted as follows:-

I..  That the seven share certificates were sent to the company BBLIL for the purpose of splitting one share certificate of hundred equity shares into two certificates of 50 equity shares each and the other six certificates along with first, second and final calls receipted notices for endorsement thereon .  Despite receipt of the documents the said company did not sent back the share certificates despite repeated letters , copies of which are part of the record.  Thereafter despite specific request made vide letter dated 17.3.1997 to stop transfer the shares were illegally and unlawfully transferred on 23.4.1997 in favour of the second respondent on the basis of illegal and invalid transfer instruments, incollusion with the staff of the said respondent company .  The petitioner nor the joint holder ever signed or executed any instrument of transfer and the transfer deeds filed by the second respondent were clearly forged as would be evident from the affidavit filed by the stock brokers respondents 3 and 4 in the present proceedings .  The transfer was also affected in contravention of the provisions of Sec 108 of the Companies Act read with SEBI guidelines and circulars also contrary to the provisions of the stamp act.  The transfer in favour of the second respondent on the basis of forged transfer documents can pass no valid title and is void abinatio, therefore, the first respondent was duty bound to rectify the register of members by entering the name of the first name shareholder and the petitioner as it stood before in the register of members being the original allottee and the names of the transferee respondent no.2 be cancelled.

(ii).That the subject matter of the petition being a case of forged transfer and on the basis of fraud and collusion on the part of the staff of the company BBLIL which merged with HLL,. the petition could not suffer from any bar of limitation.  That apart no limitation is prescribed for an application under Sec. 111 (4) for rectification which provision will be applicable in view of the provisions of Sec. 111A subsection (5)(7) of the Act. 

(iii) The facts available on the record are adequate enough to adjudicate the subject matter of dispute in the present petition and no complicated questions of fact and law can be said to arise which cannot be decided by the CLB  in the present proceedings.  Elaborating the arguments it was submitted that the petitioner was the original allottee along with the first name shareholder and had submitted the seven share certificates comprising of 370 equity shares not for transfer but for purpose specified and mentioned in the petition.  The shares were duly received but were never send back despite repeated letters from the petitioner.  Copies of which are available on the record.  That the transfer deeds submitted by the respondent no.2 was forged it would be evident from the fact that the respondent no.3 and 4 whose name and rubber stamp appeared as share brokers on the transfer deed has filed affidavits in the present proceedings saying that the said endorsement were forged and they were never parties to the said transaction .  The respondent no.6 from whom the second respondent have obtained the shares in question did not enter appearance neither has he specified from where he obtained the shares .  Respondent no.5 who is alleged to be the witness of the signature of the transferors has not put in appearance or filed any affidavit  in support of the case of the second respondent in these proceedings.  In view of the same on the material on record  the matter could be decided by this Board and it was not necessary relegate the parties to file a suit.

11.       Appearing for the respondent no.1 Shri Ajay Kumar , Practicing  Company Secretary has submitted as follows:-

i)                    The petition was not maintainable as the first joint holder of the shares n question namely Naresh Chander Dhawan was not made a party neither has he signed the petition .  Drawing attention to the provisions of Section 53(4), Section 172 (2) (I) and regulation 57 of Table 'A' of Schedule 1 of the Act  and Section 205 (5)(B) of the Act it was contended that primacy was given to the first joint holder and his non inclusion is a serious defect and fatal to the maintainability of the present petition.

ii)                   The petition was barred by limitation as under Sec 111A (3) of the Act , it ought to have been filed within two months from the date of delivering of the instrument of transfer to BBLIL whereas the present petition was filed on 15.4.1999 after a delay of about 22 months .  Consequently the petition deserves to be thrown out on this ground alone.

iii)                 It has also been contended that the facts of the case are complicated in as much as allegations of fraud, forgery and dispute about the title of the shares have been raised .  That apart  the identity of the broker firm from whom the impugned shares were acquired by the second respondent itself has been disputed .  It has not been established beyond doubt as to who is the real proprietor of the brokers firm, namely, respondent no.4 or respondent no.5 .  Reference in this connection has been made to the case of Estate Investment Company Pvt. Ltd. Vs Siltap Chemicals Ltd.(1999) 96 Comp.Cases  217 wherein the Company Law Board had held that the status of the share broker vis-à-vis the shares become very relevant to decide on the rectification and in the absence of the broker it was not possible to decide the same unilaterally .  Support has also been sought from the decision of the Bombay High Court in the case of National Insurance Company Limited Vs Glaxo India Limited (1999)34 CLA 30 wherein it was held that where there was a dispute as to the transaction itself and whether the person holding the shares were holding them as forged documents , such disputes could not be said to be exclusively pertaining to rectification of the register of members that could be decided by the Company Law Board . 

iv)                 It has been next contended that the impugned shares have since been transferred on the strength of valid transfer deeds to more than one subsequent buyers and finally dematerialized in electronic form.  As per the depository system the certificate numbers and distinctive numbers of these shares stand extinguished and the National Securities Depository Limited (NSDL) is the registered owner thereof in the books of the respondent .  Consequently also it cannot be ascertained as to who are the present beneficiary owners of the impugned shares and no relief regarding rectification of register of members can therefore be granted. 

v)                  Third party interest has been created in as much as other parties have purchased the shares making the case more complicated.  Support has been sought from the decision of the Supreme Court in the case of Ammonia Supplier Corporation Pvt. Ltd (1998) 94 Comp.Cases 310 wherein it has been held that even complicated questions of fact and law cold be decided without relegating the parties to a suit provided  material were available before Company Law Board to decide the said question.  It was contended that there was no such material evidence available before the Company Law Board which could be said to be sufficient to decide the complicated question of facts and law .

            In view of the said contentions the Learned Counsel has prayed that the petition be dismissed .

12.       On behalf of the Unit Trust of India one of the subsequent transferee Learned Counsel who entered appearance did not file any written reply to the petition but submitted a short written submission stating that the UTI was a bonafide purchaser for value and its interest should be protected.

13.       We have carefully considered the submissions made by the Counsel for the parties .and have perused the record of the case.

 

14.       The company has raised certain objections  that the  petition suffers from limitation, that the first joint holder has not been included as a party and that complicated question of facts are involved in this case.  As far as  limitation is concerned, no doubt as per Section  111A(3) of the Act a petition is to be filed within a period of two months from the date of registration, yet in this case it is crystal clear that  the transfer of the impugned shares had been effected in a fraudulent manner  as narrated herein after.  In respect of fraudulent transactions, limitation cannot be strictly applied.  Further, in the present case we find that the petitioner had been taking various steps to get the complaint solved by  writing to practically all statutory authorities finally culminating in filing of this petition.  Therefore, on equitable consideration also, even assuming that there is some delay on the part of the petitioner we do not propose to take cognizance of this objection and as such we hold  that this petition is maintainable. In regard to the non inclusion of the first joint holder as a party, since the petitioner is the second holder of the impugned shares, he has all the right as an investor to move this petition and as such non inclusion of the first joint holder is not fatal to the petition.  So far as the other objection that complicated questions of facts are involved, we do not find any complicated facts in this case.

15.       The sixth respondent through whom the second respondent got the shares transferred has not filed any reply.  The instrument of transfer contains the rubber stamp of the 3rd and 4th respondents to indicate as if the transfers were effected through them.  They have denied this fact and as a matter of fact,  according to the third respondent the name of the firm had been changed in 1996 itself and the embossment  made therein does not reflect the changed name.  The fourth respondent has also submitted that they have ceased to be dealing in shares in 1992 itself.  Thus, there had been fraudulent embossment of their stamps on the instruments. Coupled with this the signature of the petitioners in the instrument of transfer lodged originally with the BBLIL did not tally with their specimen signature, and the company has gone by the notarised signatures. There is nothing on record, in the absence of reply by the sixth respondent as to when, how and from whom he obtained the shares. Therefore it is crystal clear that the 6th respondent had adopted fraudulent means in transferring these shares to the 2nd respondent.

16.       It is a case wherein the inaction/indifference of BBLIL to various letters and requests made by the petition  has resulted in filing of this petition.  In the reply, the company into which BBLIL had merged with, has not disputed receipt of various letters written by the petitioner regarding the impugned shares. Since there is no denial in the reply of the company that it had not received the share certificates lodged by the petitioner vide his two letters dated 15.11.96, and since the petitioner has produced sufficient documents to show that these  letter had also been received by BBLIL,  it has to accept the responsibility for the loss of the share certificate while in its custody.  It is on record that the petitioner had written  letters on 9.12.96, 21.1.97, 31.1.97, 3rd and 4th Mar. 97, 17.3.97 wherein he had repeatedly informed the company about the non receipt of the share certificate lodged by him either for splitting or for incorporating the details of call money paid by him.  We also find that the company itself had noted, at the time when the share certificates were lodged for transfer in the name of the second respondent, that the signatures of the petitioners in the transfer deeds did not tally with their specimen signatures.  A copy of the letter in this regard dated 28..2.97 written to the second respondent  by BBLIL was also  endorsed to the petitioner.  In response to this, the petitioner sent a letter to  BBLIL on 17.3.97.  In this letter he has also referred to all other earlier letters addressed to  BBLIL and has categorically stated that he had not sold the shares and as such  asked  BBLIL not to effect registration of any transfer.  In spite of this letter,  BBLIL informed the petitioner vide its letter dated 17.9.97 that it had effected the registration of the transfer of the impugned shares. We find from the copies of the transfer deeds enclosed with this letter, that the transfers were registered on 23.4.97,  indicating very clearly that the registration was effected after the letter of the petitioner dated 17.3.97. Thus, the registration of the transfers in favour of the second respondent has occurred due to the negligence  of BBLIL.

17.       Now that we have held that these shares have been fraudulently transferred and that but for the negligence/inaction on the part of the BBLIL, the shares could not have been transferred in the name of the respondent,  the question of relief arises.  In the normal circumstances, in view of the fraudulent transfers, we would have directed the company  to rectify the register of members by deleting  the names of persons holding the shares and  to insert the name of the petitioner along with the first joint holder.  However, in the present case, the second respondent has already sold these shares and due to merger with the company, shares in the name of the company have been issued in respect of shares held in BBLIL.  Further, in view of the dematerialisation of shares, the identity of the shares has been lost and as such the question of deleting the name of any present shareholder in respect of these shares is not possible.  In the circumstances, considering the fact that the BBLIL had been squarely at fault in effecting the registration of transfer in the name of the second respondent,  and that a shareholder cannot suffer on account of the same, we consider it appropriate to direct  the first respondent company with which BBLIL has merged with, to pay the price of the impugned shares (which is equivalent to 166 shares of HLL) to the petitioner.  The price of the shares shall be the one which was the highest in Mumbai Stock Exchange between the period of lodgment of the share certificates by the petitioner i.e. on 15.11.96 and the date of effecting the registration of transfer of that is on  23.4.97. In addition to this,  we also award a cost of Rs.10,000 to the petitioner.  The price for the shares as compared to above and the cost will be paid to the petitioner and the first joint holder jointly within six weeks from the date of the receipt of this order. 

18.         With  the above directions, we dispose of this petition.

 

( C.R. DAS                                                                             ( A.K. BANERJI )

Member                                                                                       Chairman

Mumbai

Dated the               June, 2001