TaxTMI 
TaxTMI 
2018 (1) TMI 536
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Pledged Shares; (b) direct that the alleged transfer of the 55,60,000 Pledged Shares by the Respondent No. 1 to be nonest and void ab initio; and (c) direct that the Pledged Shares of the Applicant in question be released to the registered owners, the Investment Companies; and (d) direct that the Respondent No.1 be directed to collect the principal amount of Rs. 3.5 crores already lying deposited with the Registrar of this Hon'ble Court pursuant to the sanctioned Scheme of Compromise; and (e) direct that any balance amount deposited in this Hon'ble Court as amount to be distributed for second tranche under the Scheme of Compromise, be directed to be refunded to the Applicant, together with interest; and (f) direct that the Respondent Nos. 2-4 be directed to accept the shares or amount as the case may be; and/or pass such other and further order or orders as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case and in the interest of justice." 2. Before coming to the question as to if the reliefs sought need to be granted to the applicant, I may refer to the factual matrix of the case as put by the applicant herein:....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... bank accounts without leaving a sum of Rs. 5,83,00,000/-. No order was passed granting liberty to the Respondent No. 1 sell the pledged shares. vii) On 08.09.1997 the High Court of Kolkata passed a judgment and decree upon admission against the Applicant for the entire amount totaling to Rs. 5,83,96,465/- as prayed for by the Respondent No.1. The interim order dated 23.04.1997 was directed to continue. The civil suit No.161A of 1997 as regards prayers seeking liberty to sell the pledged shares held by Respondent No. 2-4 was kept pending. viii) On 29.04.1998, an Official Liquidator was appointed by this Court in C.P. No.68 of 1997 for the applicant company. ix) In May 1998 Respondent No.1 filed an Execution Petition No.154 of 1998 in C.S. No.161-A of 1997 for execution of judgment and order dated 08.09.1997 before the High Court of Kolkata. The Respondent No.1 duly acknowledged in the said application that the suit has been directed to be kept pending with regards to the other reliefs claimed in the plaint. x) On 23.06.1998 the High Court of Kolkata stayed proceedings in the Execution Petition No.1545 of 1998 on account of appointment of Official Liquidator by High Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....997. The Respondent No.1 did not seek prior permission of the Court before carrying out the purported sale. It is a matter of record that the Respondent No.1 had specifically prayed for grant of liberty to sell the pledged shares. However, the Court refused to grant the liberty. xvii) As per the case of the Respondent No.1, it has sold shares to (a) Twenty Four Carat Investment Ltd. and (b) RR Stocks and Shares Brokers on 07.12.1998. It is a matter of record that sale consideration from Twenty Four Carat Investment Ltd. to the Respondent No.1 was outstanding (at least till 2011), as recorded in the charge sheet filed by Police in FIR No.31 0f 2005 on the complaint of respondent No.1. The charge sheet filed by Police in FIR No.31/2005 through record the shares were sold by the Respondent No.1 to Twenty Four Carat Investment Ltd. and RR Stocks and Shares Brokers on 07.12.1998 but it also recorded RR Stocks and Shares Brokers made payments to the Respondent No.1 on 12.04.1999, 20.04.1999, 26.04.1999 and 12.05.1999 and whereas Twenty Four Carat Investment Ltd did not make payments to the Respondent No.1 and the said fact has been admitted by Twenty Four Carat Investment Ltd. in its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... taken in this regard. Accordingly, the Respondent No.2 to 4 filed an application under Section 156(3) of The Code of Criminal Procedure, 1973 seeking direction for registration of FIR against the Respondent No.1 and alleged purchasers. On 24.04.2014, the Metropolitan Magistrate, Saket Court, Delhi directed for the registration of FIR No.375 of 2014 against the Respondent No.1 and alleged purchasers under Section 406, 420 and 468 of the Indian Penal Code, 1860. xxii) The applicant then filed scheme of compromise under Section 391/394 of The Companies Act, 1956 before this Court being C.A. 410 of 2000. xxiii) In May, 2000 Applicant filed modified scheme of compromise before this Hon'ble Court being C.A. 797 of 2000. xxiv) On 07.08.2000 the Court in C.A. 555 of 2000 was pleased to direct that decrees/ final orders, if passed against the Applicant Company, shall not be executed without the leave of this Court. xxv) In January, 2001 Respondent No. 1 filed an application bearing GA No. 2293/2001 in CS 161A/1997 praying for direction to the Applicant herein and its transfer agent M/s Karvy Consultants Ltd (hereinafter referred to as "Karvy") to register transfer of 40,48,200 and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Respondent No.1 was held to be entitled to only receive 70% of the principal amount advanced to the Applicant Company; and b) Respondent No.1 was directed to return the shares deposited with it as security to the Court. xxxiv) On 20.07.2005, APO.T 469/2005 filed by the Applicant Company against order dated 07.07.2005 was allowed. The Appellate Court held the Respondent No.1 was deemed to be in same class as unsecured creditors and that the scheme is binding on Respondent No.1 and it must not proceed with execution proceedings. xxxv) The appeal filed by Respondent No.1 against the Single Judge's order dated 22.08.2001 was heard and orders reserved in December 2003. The appeal was disposed off by the Division Bench of High Court of Kolkata vide its judgment dated 11.07.2005 directing the Applicant and Karvy to register the transfer of 40,48,200 and 15,11,200 shares in the name of respective purchasers. The Applicant and Karvy were restrained from returning shares without affecting the transfer. They were further restrained from recalling 15,11,200 shares which they had returned, without affecting any transfer. It is alleged this order was passed by the Division Benc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Division Bench dated 11.07.2005 held: "it is said by the applicants (Respondent No. 2 to 4 herein) that the above shares have till date not been registered. I only observe that if such is the case, any right arising out of such nonregistration or subsequent registration is kept open." xlii) On 09.11.2012, Appeals 1 & 2 of 2011 filed by Applicant and Respondent No. 2 to 4 and cross appeal of Respondent No.1 against Order dated 14.07.2010 were adjudicated by the Division Bench of the this Court. The Division Bench upheld the classification of Respondent No. 1 as an unsecured creditor and held sanction scheme to be valid and binding on the Respondent No.1. However the issue of alleged sale of shares and purported receipt of Rs. 1.39 Crs by Respondent No.1 on the sale of pledged shares was not adjudicated upon. The Division Bench observed this issue can be decided by this Court. xliii) In March 2014, an application bearing Co. Appl No. 5459 of 2014 was filed by the Respondent No.1 before the Division Bench of the this Court seeking clarification of paragraph 32 of Judgment dated 09.11.2012. xliv) On 02.05.2014, the Division Bench of this Court dismissed the clari....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spect/ question, when raised, can be decided by the Company Judge." The Division Bench of this Court did not examine the effect or validity of the alleged sale of shares and purported receipt of consideration as was not a subject matter in appeal and rather left it open for determination by this Court. 6. The respondent No.1 then filed a clarification application bearing CA No.5459/2014 in Company Appeals No.1 & 2 of 2011 raising the plea of alleged transfer of shares/purported receipt of consideration cannot be re-agitated in view of judgment dated 11.07.2005 of Division Bench of Kolkata but the Division Bench dismissed the said application on 02.05.2014. Hence, the respondent No.1 cannot say the issue qua the sale of shares and receipt of consideration had attained finality. 7. The learned senior counsel for the respondent No.1 though argued the validity of sale of the pledged shares in fact has been upheld by the Division Bench of Kolkata High Court in its decision dated 11.07.2005 hence the objections qua the validity of the sale of the pledged shares ought to have been raised only before the Kolkata High Court and the Company Law Board proceedings did not have any bea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rcumstances of the case justice and equity demands that appropriate order should be passed to perfect the sale by directing registration of shares in favour of the purchasers. xxx With regard to the contention that the appellant has no locus stendi as title to the shares have been transferred to the purchasers, we are of the view that though in case of a share of a company the title may have passed, but such title has not yet been perfected by reason of refusal on the part of the respondent No. 1 to register of the shares. By reason of the specific statutory requirement the share register of a company is required to be changed and/or altered by inserting the name of the subsequent purchasers of the shares. In the instant case, such rectification of share register has not yet taken place. Therefore, the title would be perfect only when the share register is rectified by inserting the names of the purchasers and not otherwise. xxxxx The shares have been duly sold. Therefore, until and unless the sale is perfected, the whole object and purpose the selling of shares would be rendered infructuous. xxxxx In support of the proposition that the proper forum for registrati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the scheme is also dependent on the sale of the partly paid shares (iii) Company Petition 265 of 2003 is relating to the forfeiture and sale of the partly paid shares (for which the direction is granted in the Impugned Order) is pending. K. For that the Hon'ble Court failed to appreciate that it is not the transfer deed which are the subject matter pending in the High Court of Delhi, it is the said partly paid shares which are dealt in the Scheme of compromise. ... xxx L. ... The Hon'ble Court instead of deciding the fundamental question as to whether the Respondent No.1 can sell the partly paid shares or not, directed that the Petitioner should transfer the partly paid shares as the respondent No.1 had lodged the transfer deeds and the same were properly revalidated. xxx N. ... It is submitted that the High Court of Delhi vide its order dated July 29, 2003 while directing the meeting of creditors has specifically stated that the updated scheme sought to be submitted by the petitioner is bonafide and reasonable and prima facie feasible as well as in public interest and in the interest of all the creditors and, therefore, it should be sent for consideration under Section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly approached the Calcutta High Court to seek direction for rectification of the register to overcome and defy the proceedings pending in the Appeal, BSE opinion and the Scheme of compromise. xxx AF. Because the Hon'ble Court failed to appreciate that the application moved by the Respondent No.1 is malafide in as much as respondent had come to know that once the scheme is sanctioned, it shall be binding on Respondent No.1 and in terms of the Scheme Respondent No.1 shall be required to deposit the partly paid shares in the Court and shall be utilized for funding the working of the Scheme. The respondent No.1 in order to over reach the terms of the Scheme has tried selling the shares and recover money in addition to what Respondent No.1 is entitled to in the Scheme. AG. Without prejudice to its rights and contentions it is submitted that Respondent No.1 being only the Pledgee of Partly Paid Shares has no locus standi to seek registration of transfer of the pledged shares as the respondent No.1 has allegedly sold the shares in favour of the Purchases. 11. The judgment dated 11.7.2005 of Division Bench was then stayed on 12.09.2005 by the Supreme Court. The order notes: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pawnee to file a suit for recovery and also to sell the pledge on reasonable notice to the pleader, but then one also need to see if Section 176 (supra) was complied with in its true spirit. Section 176 of Indian Contract Act read as under : "If the pawnor makes default in payment of the debt, or performance; at the stipulated time or the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawn or is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor." The letter dated 07.12.1998 viz., the alleged notice claimed to have been sent per section 176 of Indian Contract Act notes :- "Dear Sirs, We have been holding 15,00,000 Equity Shares of Rs. 10/ - each of Modi Luft Limited which have been pledged with us by you as a security against our loan of Rs. 5.00 crores giv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are concerned, the same also purports to bear the signature of Kuldeep Bhatnagar. The Respondents have denied having issued any such letters and have stated in their reply that the same has been obtained in collusion with Kuldeep Bhatnagar." Even an appeal filed by Respondent No.1 against the above order dated 13.01.2000 of the Company Law Board stood dismissed for non-prosecution, hence the issue qua non-service of a reasonable notice u/s 176 Indian Contract Act attained finality. 17. Secondly, the Respondent No.1 admittedly had elected to file a suit No 161 A/1997 for recovery at Kolkata with a prayer to sell such shares. The respondent no.1 rather prayed for a declaration it is entitled to sell the shares by public auction and/or private treaty and realize the sale proceeds thereof in satisfaction of its claim in the Civil Suit, hence in the absence of grant of such declaratory relief by the Single Judge in Suit No.161 A/1997 the pledged shares could not have been sold by the respondent No.1. The High Court never granted any liberty to the respondent No.1 to sell the pledged shares when, admittedly, the transfer deeds though were in possession of the respondent No.1 but ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of any security specified in the notification except to the extent and in the manner, if any, specified therein. (2) All contracts in contravention of the provisions of sub-section (1) entered into after the date of the notification issued thereunder shall be illegal." 29. From a plain reading of the aforesaid provision it is evident that in order to prevent undesirable stipulation in specified securities in any State or area the Central Government by notification is competent to declare that no person in any State or area specified in the notification shall, save with the permission of the Central Government, enter into any contract for the sale or purchase of any security specified in the notification. The Central Government in exercise of the aforesaid power issued notification dated 27th of June, 1969 and declared that in the whole of India "no person" shall "save with the permission of the Central Government enter into any contract for the sale or purchase of securities other than such spot delivery contract" as is permissible under the Act, the Rules, bye-laws and the Regulations of a recognized stock exchange. The appellant, therefore, can come out of the rigors of S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sale of shares. Once we take this view, the plea of the appellant that it is a spot delivery contract is fit to be rejected. We agree with the reasoning and conclusion of the Company Law Board and the High Court on this issue. 20. Moreso the sanctioned scheme for compromise with creditors of Royal Airways Limited filed in Company Petition No.385/2003 noted the principal amount due to the respondent No.1 as Rs. 5.00 Crores. This scheme was also upheld and it attained the finality. The Division Bench of this Court in its judgment dated 09.11.2012 rejected the pleas of respondent No.1 challenging the scheme and therefore, the contention of respondent No.1 viz. the liberty granted by the Division Bench was only to determine the dues to respondent No.1 under the scheme is misleading. Admittedly, the scheme, as sanctioned on 15.07.2005, records the principal amount payable to the respondent No.1 as Rs. 5.00 Crores. The respondent No.1's plea before the Division Bench of this Court, as recorded in its order dated 09.11.2012 was the respondent no.1 has been wrongly categorized as an unsecured creditor in the scheme and now that an amount of Rs. 1.39 Crores has been received as a sale's ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shares but rather left the question open to be decided by the Company Court and at paragraph 32 recorded the same as "alleged" and receipt of consideration as "purported". Therefore, the question of validity of 'alleged sale of shares' and 'purported receipt of consideration' has been kept open by the Division Bench of this court for its determination by this company Court. A perusal of the judgment dated 9.11.2012 would reveal these issues have neither been recorded nor adjudicated by the Court. 25. The learned senior counsel for respondent No.1 further argued the issue of forfeiture of the shares was pending adjudication in CA No.265/2003 which was put to rest by memorandum of settlement dated 26.11.2008 and the said CA No.265/2003 was dismissed as withdrawn by an order dated 16.01.2009 with a liberty granted to the respondent No.1 to raise an issue before the Supreme Court as a matter of abundant precaution, though, it was not at all necessary as the Malanpur's share were never forfeited in terms of the settlement, hence, it was argued the order dated 06.07.2009 only dealt with an issue of forfeiture of the shares and did not disturb the finding of the Division Bench of Kolk....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n shares in companies to the appellant by a registered deed. She also signed several blank transfer forms to enable the donor to obtain transfer of shares in the register of companies. However, she died before the shares could be transferred to the appellant in the books of the companies. The respondent, a nephew of the donor, filed the suit, claiming the shares on the ground that the gift was incomplete for failure to comply with the formalities prescribed by the Indian Companies Act 1913 for transfer of shares. Noticing that in 53 Indian Appeals, 92 a distinction was made between "the title to go on the register" and "the full property in the shares in a company", the court expressed the view that Section 6 of the Transfer of Property Act also justified such a splitting up of a right constituting "property" on shares just as it was well recognized that rights of ownership of property might be split up into a right to the "Corpus" and another to the "usufruct" of the property and then separately dealt with. On the delivery of the registered deed of gift together with the share certificate to the donor, the donation of the right to get the share certificate transferred in the name ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e companies in which they hold shares. A share certificate not merely entitles the shareholder whose name is found on it to interest on the share hold but also to participate in certain proceedings relating to the company concerned." 28. Last but not the least, it is also important to note the alleged purchasers namely Twenty Four Carat Investment Limited; RR Stocks and Share Brokers and Prasad & Company Private Limited, admittedly, have never come forward to initiate any proceedings against respondent No.1 till date which rather show these purchasers are in the name only and respondent No.1 continues to hold such shares and there has been no sale in fact. Secondly, the respondent No.1 though is arrayed as M/s Malanpur Steels Limited, no longer exist as has merged with M/s Hindustan Engineering and Industries Limited. The BIFR vide its order dated 04.09.2012 has sanctioned the rehabilitation scheme of merger of erstwhile M/s Malanpur Steels Limited with M/s Hindustan Engineering and Industries Limited and hence on 04.09.2012 the respondent No.1 has lost its identity and had ceased to exist as a distinct corporate entity, but is yet being defended under the name of M/s Malanpur S....