RAHUL SUBODH WINDOORS LIMITED Vs. A K MENON

JUDGEMENT

(1.) The second respondent was notified under Section 3(2) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (hereinafter referred to as 'the Act') as a person involved in offences relating to transactions in securities during the period mentioned therein. Respondent No. 1, who is the Custodian appointed under Section 3(1) of the Act, on inquiry with the appellant, came to know that they had received a cheque for a sum of Rs. 20 lakhs from the second respondent for purchase of certain shares, without, however, mentioning the names of the ten shareholders to whom the shares were to be issued. The appellant claimed that they had allotted and sent the necessary share certificates to the second respondent and they also sent to photocopies of the share certificate thereof to the Custodian. The Custodian, by letter dated March 28, 1994, informed the appellant that the share certificates would be the property of the second respondent and would stand attached and there should be no transfer in respect of these shares. The Custodian on September 27, 1994 files an application before the Special Court under the Act for return of a sum of Rs. 20 lakhs along with interest.

(2.) It was brought out in the proceedings before the Special Court that by a letter dated November 5, 1991 the appellant informed the second respondent that shares of their company worth Rs. 20 lakhs were to be sold. On November 13, 1991 the second respondent sent a cheque for a sum of Rs. 20 lakhs and on November 15, 1991 the appellant forwarded to the second respondent 15 applications for purchase of shares on buy-back basis. A resolution was made on November 15, 1991 at the meeting of the Board of Directors of the appellant to allot and issue shares to the investors and to complete formality and physical allotment in due course. On November 23, 1991 the appellant sent to the second respondent application forms so that they may be filled up by its clients. The claim put forth by the appellant is that they had allotted shares to the second respondent and that they had forwarded to the second respondent the certificates for 2 lakhs shares. But the second respondent claimed that no such share certificates were ever forwarded by the appellant to them and their claim is that no allotment had been made at all. It was argued before the Special Court that in the background that the allotment had been accepted by the Custodian in letter dated March 28, 1994 and, therefore, the only claim of the Custodian can now be in respect of the share certificates and that Rs. 20 lakhs have been paid towards subscription for shares, the Custodian cannot now claim back the same. The Special Court rejected this connection. The Special Court came to the conclusion that there has been no allotment of shares at all inasmuch as there can be no allotment of shares in blank and in the copies of the share certificates produced before the Special Court no names have been entered. No application had been filed by the second respondent in terms of Section 41(2) of the Companies Act agreeing to become a member of the company and his name be entered in the Register of Members. On examination of the Register of Members, the Special Court found that there were certain suspicious circumstances which clearly indicated the fact that the second respondent had never made an application in writing for allotment of shares. The Special Court further examined the matter with reference to the distinctive numbers of the shares which revealed a lot of suspicion to the effect that their names in the Register of Members were made sometime after the letter was sent by the Custodian only to over-come the difficulty of an application being made by him and long after the second respondent was notified. Therefore, the allotment is purportedly to be made in his name without any application in writing and only with a view not to return the money belonging to the notified party. Further, there is no intimation to the Registrar of Companies either for filing a return of the statement stating the number, the nominal amount of the shares, the names, addresses, occupation of the allottees and the amounts, if any, paid or due and payable on each share.

(3.) Thus on the basis of these circumstances and certain other attendant circumstances, the Special Court came to the conclusion that there was no allotment of shares and it is not now open to the appellant to make such an allotment of shares and, therefore, it directed the repayment of the sum of Rs. 20 lakhs with interest. Alternatively, the Special Court held that the sale/purchase of shares was on a 'buy-back basis' and it was only an arrangement for financing and even on that basis the price must be the original price plus more amount for interest at a reasonable rate and that must be repaid. In conclusion, the Special Court directed the appellant to pay the Custodian for and on behalf of the second respondent a sum of Rs. 20 lakhs together with interest thereon @ 18% per annum from November 13, 1991 till payment.