9911796707
TMI Blog2012 (6) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... y be crystallised and stated as to whether the Special Court was right in rejecting the application of the appellant-investor seeking certification of the tainted shares on the ground of delay due to violation of cut off date in spite of absence of a statutory provision to that effect as also the fact that the appellant-investor admittedly had no role or involvement in treatment of the alleged equity shares as tainted which required certification before payment of dividends on the same. 3. The substantial details and circumstances under which this appeal arises indicate that the appellant herein who is a small investor had purchased 100 equity shares of the respondent No. 2 Company namely Reliance Industries Ltd. on 12-6-1989 and payment of the same was made through his share broker - respondent No. 4-Abex and Company which perhaps is not in existence now. However, the payment for purchase of the shares had admittedly been made through Union Bank of India by way of a demand draft. It is the case of the appellant herein that the respondent No. 4 despite repeated enquiries never informed the appellant regarding the status of his shares and hence the appellant was absolutely in dark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re P-2 is the copy of the letter dated 5-1-2001 which is allegedly written by the respondent No. 3- M/s. Karvy Consultants Ltd. to the appellant directing him to file the application seeking certification of shares. 6. The appellant in the meantime had also made further enquiries in regard to the certification of the tainted shares and also for consequential benefits which accrued on the shares in question. He then learnt that he would have to file an application before the Special Court seeking direction to the Custodian for certification of shares as it was reiterated that the shares in question stood in the name of M/s. Fair Growth Financial Services Ltd.-respondent No. 5 which were the subject-matter of attachment as per the Government of India order since they were found to be tainted. A clarification also is alleged to have been issued by the respondent No. 3-Karvy Consultants Ltd. that in order to do justice to the bona fide investors, the Special Court in its orders dated 27-7-1992 and 31-7-1992 bearing Misc. Application Nos. 1, 2 and 3 of 1992 laid down a procedure for certification of the tainted shares through the representative of the Custodian. It was informed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid position, the appellant filed an application before the Special Court under the provisions of Special Courts Act of 1992 wherein he prayed for certification of the shares by the respondent No. 1-Custodian and its release and payment of accruals but as per the letter from the office of the Special Court it was intimated that the last date to submit application for certification was 27-6-2005 and hence it could not be entertained. 9. The appellant, therefore, filed an application before the Special Court on 27-8-2005 stating that he was not aware of any cut off date regarding the filing of the application for certification of shares by the Custodian and was also not aware of the procedure or the last date of filing any application for certification until he received the letter on 22-8-2005. Hence, the appellant/applicant was not able to file any application for certification of the tainted shares within the time fixed by the Special Court. 10. The learned Judge of the Special Court however, was pleased to dismiss the application on 28-11-2005 stating that the plea of the applicant that he was not aware of the procedure laid down by the Special Court for certification of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Custodian were disposed of by the Custodian as per the procedure for sale of shares laid down by the Special Court. 13. It was further stated by the custodian in his reply that the distribution/ad hoc payments from the attached account of the notified parties admittedly were made in accordance with the order passed by the Special Court from the moneys that were available in the attached bank account of the notified parties as these attached accounts also included accruals (dividends/sale proceeds of bonus shares) which was not separate from other moneys in the attached account. It was, therefore, submitted before the Special Court by the Custodian in Bombay Stock Exchange v. Custodian and Assistant Commissioner of Income-tax [Miscellaneous Petition No. 1] along with a batch of several other analogous petitions that as there was no time limit for the affected persons to approach the Hon'ble Special Court for certification and such certification could be directed by the Hon'ble Court (Special Court) at any point of time, it was apprehended that in such circumstance a situation might arise where shares may be allowed to be certified by the Hon'ble Court even after substantial pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 915292605 to 654 and D-114196259 to 308 of the notified company may be declared as bona fide purchaser/owner of the said shares. A direction was sought to the Custodian and/or company to release/pay all the accruals declared from time to time till date on the said 100 shares. As already stated, the application was rejected by the Special Court by a summary order indicating that the application could not be entertained since the same had been received after the cut off date of 27-6-2005. 17. Challenging the order passed by the Special Court, the counsel for the appellant submitted that the application filed by the appellant for certification of his shares and thereafter granting consequential benefits accruing on the 100 shares which were purchased by the appellant, could not have been rejected only on the ground that it had been filed beyond the cut off date i.e. 27-6-2005 as the appellant who was not in the country throughout and was living abroad had not been informed at all by any of the concerned respondents that the shares were tainted which required certification within a cut off date and when he made enquiries on his own, he could know of the developments. 18. Learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sultants Ltd. also and perhaps respondent No. 5-M/s. Fair Growth Financial Service Ltd. would clearly be deemed to be bona fide purchase. However, since the shares in question were held to be tainted by order of the Government of India due to which it was not honoured by the respondent No. 2-Reliance Industries Ltd., the need arose for its certification through the Custodian under the control and supervision of the Special Court constituted under the Act of 1992. Meanwhile, long time had elapsed between the date of purchase and the application for certification of the shares and obviously during this long period it is the respondent - Custodian in coordination with the notified company and the share brokers respondent Nos. 3 and 4 (Karvy Consultants Ltd. and Abex and Company) who was responsible to certify the shares of the notified company so that the dividends accruing on the shares could be paid. In the process, no doubt, the respondent No. 1-Custodian encountered several procedural hassels as the claim of payment were made at frequent intervals by large number of investors holding the shares which were informed to be tainted and hence required certification by the Custodian. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f certain brokers. In order to deal with the situation and in particular to ensure speedy recovery of the huge amount involved, to punish the guilty and restore confidence and to maintain the basic integrity and credibility of the banks and financial institutions, the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 was enacted for speedy trial of offences relating to transactions in securities and disposal of properties attached. This Act envisages the appointment of one or more custodians to take steps for guarding the interests with a view to check the diversion of funds invested in the form of shares by the offenders which may be in the form of companies or share brokers. Therefore, the duty of the custodian as also the Special Court is to take into consideration that while the plea of the custodian for facilitating certification of shares by fixing cut off date might have been reasonable in the given situation where large number of investors were filing applications for certification of the tainted shares time and again and hence cut off date might have been justified, it was also expected to take care and guard the interest of the investors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application for certification was, therefore, based merely on the theory of convenience of the custodian clearly ignoring its ramification on the bona fide investor. It is common knowledge that when public at large invest in securities by purchasing shares of a notified company, it purchases through various modes including the modern tools and technique of internet and many other modern modes and methods. But thereafter, if the shares are held to be tainted which is clearly beyond the control of the appellant/investor and its certification is required, it is surely the custodian in co-ordination with the company floating shares as also the share broker company or the stock exchange, which has the onus and responsibility to take care of the interest of the investors under the supervision of the Special Court in view of the provision of the Special Courts Act of 1992. The 'Custodian' therefore cannot shirk away from his function and the duty cast upon him by limiting his responsibilities and seeking a cut off date during which only he could perform the duty of certification, oblivious of its consequence and other ramification on the investors which include small investors also who pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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