2013 (1) TMI 587 - HC - Companies Law

Court rules in favor of depository participant in ownership dispute over dematerialized shares

National Securities Depository Ltd. Versus Kamlesh Shah

The court ruled in favor of the appellant, a depository participant, in a case challenging an order related to ownership disputes over dematerialized ... Depositories Act, 1996 - role and power of NSDL - Respondent No. 1 filed the company petition before the CLB against L&T, Ultratech Cement, Sharepro Service, the appellant-NSDL and seven others seeking an order for decision on title of Respondent No. 1 and rectification in respect of 431 shares of L&T which were held/dematerialized by various persons - Respondent No. 1 claimed to have made a bona fide purchase of 650 shares of L & T from his broker on 4-10-1999 got delivered and claimed to have misplaced in the year 1999 and inturn received new transfer deeds for 229 shares. However, being unable to obtain fresh transfer deeds in respect of 431 shares - Respondent No. 1 sought rectification order from the Company Law Board in respect of the balance 431 shares - CLB directed NSDL to issue notices to respondent Nos. 5 and 6 and take appropriate decision in the matter - Held that:- The role and power of the NSDL is quite restricted and limited as they are not empowered to decide or adjudicate the claim of title in respect of demated shares. Any dispute with regard to the ownership or title of any share including demated, the proper forum is somewhere else. Unless the title and/or any objection regarding transfer of shares is decided finally in case of dispute and in case there is no dispute, it cannot be forwarded by the company for further transfer. As the parties concerned unless clears the position about the ownership and/or title of the shares, NSDL is no way in a position to accept and/or permit the transfer of demated shares. Their role, in view of the above position, just cannot be enlarged in such a fashion, as done by the impugned order. Thus considering the role and scope, if NSDL is not in a position to adjudicate and/or decide the title of any shares, there is no question of issuing notice to the concerned and hear them for deciding the title/ownership. Therefore, there is also no question of taking any decision with regard to the same. Everything will be, without jurisdiction and authority. Therefore, order passed by the Board against NSDL is quashed and set aside - liberty granted to the concerned Respondents/Original Petitioners to take out appropriate proceedings to get their dispute settled with regard to the title of the demated shares and/or such other shares - company appeal partly allowed. Issues:Challenge to impugned order under Section 10F of the Companies Act, 1956.Analysis:The appellant challenged the impugned order dated 23rd November, 2010, passed by the Member of the Company Law Board, Bench at Bombay. The dispute arose when the original petitioner sought an order for decision on title and rectification of 431 shares of Larsen and Toubro Ltd. The appellant, a Public Limited Company, is a depository participant under the Depository Act, 1996, providing services for holding and transferring shares in dematerialized form. The procedure for dematerialization involves defacing physical certificates and surrendering them to the Depository Participant, who then forwards them to the Company/Registrar and Transfer Agent for confirmation and electronic credit to the investor's account.The court examined the role and powers of the appellant as a depository participant, emphasizing their limited authority in deciding ownership disputes related to dematerialized shares. It was highlighted that the depository participant is not empowered to adjudicate title claims over shares. The court clarified that any disputes regarding ownership or title of shares, whether dematerialized or physical, should be resolved elsewhere, and the depository participant's role is strictly defined. The court concluded that the impugned order directing the appellant to issue notices and decide on ownership of dematerialized shares was without jurisdiction and contrary to the legal provisions.In the judgment, the court quashed and set aside the part of the order against the appellant, granting liberty to the concerned parties to pursue appropriate proceedings to settle their disputes regarding the title of dematerialized shares. The court made it clear that the appeal was only preferred by the appellant and did not decide on other aspects of the order. The appeal was partly allowed, and no costs were awarded.