2024 (7) TMI 1218 - HC - Companies Law

Delhi HC remands equity shares transfer dispute to Company Court for inquiry on consideration payment and timeline verification

CRB CAPITAL MARKETS LIMITED (IN PROVISIONAL LIQUIDATION) THROUGH ITS EX DIRECTOR MR. C.R. BHANSALI Versus ANOOP JAIN AND ORS, BIHARI LAL SARAF AND ORS., MURARI LAL SARAF AND ORS., BANWARI LAL SARAF AND ORS.

Delhi HC disposed of appeals by remanding matter to Company Court for limited inquiry regarding 7000 equity shares transfer. Court noted original share ... Transfer of total of 7000 equity shares in the name of the respondents collectively - issuance of prohibitory order under section 45MB (2) of the Reserve Bank of India Act - HELD THAT:- It is an admitted position that the original share certificates of 4000 RIL shares (96 in number) along with transfer deeds are in possession of Shri Anoop Jain. Now the only issue raised is of consideration for these 4000 shares. Shri Anoop Jain has relied on Delhi stock exchange register within the cycle 12.04.1997 to 25.04.1997 to show that he had paid the consideration. He also stated that he got the delivery of the shares on 02.05.1997 along with the original shares and blank transfer deed. He also states that through his proprietorship concern Jain and company, Mr. Anoop Jain made the payment to Delhi Stock Exchange. In effect the appellants' sole objection is that there is discrepancy in the timeline when the shares were sold by the appellant No. 1, and thereafter sold by broker to the respondent No. 1 in each appeal and that in Mr. Anoop Jain's case the contract notes, bills for delivery of possession of shares and proof of having paid the consideration is not coming forth and in Saraf brothers' case the contract notes, bills for delivery of possession of shares and proof of having paid the consideration were placed on record by them after the order was reserved by the learned Company Court but they did not get any chance to rebut the same. The matter is remanded back to the learned Company Court only for the limited purpose to inquire when the 4000 shares subject matter of transfer to Mr. Anoop Jain; 1500 shares subject matter of transfer to Mr. Murari Saraf, 900 shares subject matter of transfer to Mr. Banwari Lal Saraf and 600 shares subject matter of transfer to Mr. Bihari Lal Saraf brothers were sold by the Appellant No. 1, CRB Capital Markets Limited and to whom; and that Mr. Anoop Jain, Mr. Murari Saraf, Mr. Banwari Lal Saraf and Mr. Bihari Lal Saraf have paid the consideration for these shares. Once it is established that appellant No.1 had divested itself of the rights in these shares and sale was concluded before 09.04.1997; and that the consideration is paid by the respondent No. 1 in each appeal to the broker from whom they purchased these, the effect of the impugned order shall follow. Appeal disposed off by way of remand. Issues Involved:1. Validity of the transfer of shares amidst prohibitory orders.2. Consideration of documents filed post-hearing.3. Adherence to principles of natural justice.4. Limitation period for filing applications.5. Verification of payment and transaction details.6. Applicability of previous judgments and legal precedents.7. Locus standi of ex-management to file the appeal.Detailed Analysis:1. Validity of the Transfer of Shares Amidst Prohibitory Orders:The Reserve Bank of India (RBI) issued a prohibitory order on 09.04.1997 under Section 45 MB (2) of the RBI Act, directing CRB Capital Markets Ltd. (appellant no. 1) not to sell, transfer, or deal with its property and assets without prior written permission. The Company Court further restrained the company and its agents from disposing of any assets on 22.05.1997. The crucial dates for determining the validity of the transactions are 09.04.1997 and 22.05.1997. The respondents claimed that the shares were purchased before these dates, making the prohibitory orders inapplicable to their transactions.2. Consideration of Documents Filed Post-Hearing:The appellants argued that the learned Single Judge wrongly relied on documents submitted by the respondents after the oral arguments had concluded and the matter was reserved for orders. Documents, including a bill dated 02.05.1997, were placed on record on 20.07.2023, raising concerns about their authenticity and the opportunity for rebuttal.3. Adherence to Principles of Natural Justice:The appellants contended that they were not given an opportunity to address arguments on the documents filed post-hearing, impairing the principles of natural justice. The learned Single Judge's reliance on these documents without allowing the appellants to contest them was a significant point of contention.4. Limitation Period for Filing Applications:The application by respondent Anoop Jain was filed in 2005, eight years after becoming aware of the restraint order dated 22.05.1997. The appellants argued that this delay rendered the application beyond the period of limitation, making the impugned order unsustainable.5. Verification of Payment and Transaction Details:The respondents, including the Saraf brothers and Anoop Jain, claimed to have purchased shares through open market transactions, providing contract notes, bills, and bank statements as proof. The appellants questioned the authenticity and timing of these documents, highlighting discrepancies in dates and payment details. The learned Company Court was directed to verify when the shares were sold by CRB Capital Markets Ltd. and to whom, and whether the respondents paid the consideration for these shares.6. Applicability of Previous Judgments and Legal Precedents:The appellants cited judgments such as V.K Sharma v. Official Liquidator and R.K Aggarwal v. Official Liquidator to argue that the learned Single Judge's conclusions were erroneous. The respondents relied on similar judgments to support their claims, asserting that the restraint orders did not apply to their transactions as the shares were sold before the orders were issued.7. Locus Standi of Ex-Management to File the Appeal:An objection was raised regarding the maintainability of the appeal by the ex-management/directors/shareholders of a company in liquidation. The appellants argued that the ex-director, being a contributory of the company, had the locus to file the appeal. The court decided to remand the matter without addressing the question of maintainability at this stage.Conclusion:The appeals were disposed of with directions to the learned Company Court to verify the dates of the sale of shares by CRB Capital Markets Ltd. and the payment of consideration by the respondents. The parties were directed to appear before the Company Court on 03.07.2024 for further directions. The decision of the learned Company Court will determine the effect of the impugned order based on the established facts.