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TMI Blog2013 (7) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... irtue of being the Managing Director in VIL also started advising the plaintiff about the affairs of MPS and suggested various expansion plans / new business ventures for VIL as well as MPS; (vii) that in April, 2004, the defendant represented to the plaintiff that he was facing difficulties in convincing investors and clients that he was stable in MPS and VIL as the investors and clients wanted assurance that he was stably stationed with MPS and VIL; the defendant thus suggested that some of the shares of MPS be parked in his name and also represented that it was a common market practice to keep part of shareholding with senior officials of the company and that the same would make it easier for him to convince the clients / investors and impress them with his abilities and skills about his stability in MPS and VIL and help in bringing new business to MPS and VIL; (viii) that on such representations of the defendant, the plaintiff agreed to park / keep-in-trust shares of MPS with the defendant and on 27.04.2004 transferred part of his equity in MPS being 31,97,150 shares of MPS in the name of the defendant; it was decided that the said shares would be parked with the defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 16,50,000/- to the defendant in full and final settlement of the loan given by the defendant; however on the asking of the defendant, the said cheque was issued in the name of Mr. Anil Chuttani from whom the defendant claimed to have arranged the loan; (xix) that several projects initiated by the defendant resulted in huge and continuous loss to the plaintiff and the relationship between the defendant and the plaintiff soured; VIL had to procure further loans so that the projects initiated by the defendant did not fail for want of funds; the defendant represented to the plaintiff that he could arrange loan against the security of shares of VIL from one Mr. Rajinder Singh Negi; (xx) that accordingly 30,00,000 shares were transferred to Mr. Rajinder Singh Negi or his companies and of which 10,00,000 shares were the shares out of the 23,97,863 lying in-trust with defendant; as such between July, 2007 and November, 2007, 30,00,000 shares were transferred to Mr. Rajinder Singh Negi or his companies including 10,00,000 shares in-trust in the name of the defendant; this also indicates that the defendant had no right over the said shares; (xxi) that thereafter disputes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was pleaded that the shares were transferred to the defendant on 27.04.2004 and the declaration with respect thereto could be made within three years thereof only as provided under Article 58 of the Schedule to the Limitation Act. 5. Vide order dated 19.01.2011, on the oral request of the counsel for the plaintiff and in the light of the objection aforesaid of the defendant, Omkam and BGR were found to be appropriate parties to the suit and impleaded as defendants no.2 and 3 and an amended plaint filed. 6. Though with the aforesaid, the main ground on which the application under Order 7 Rule 11 CPC had been filed disappeared but the same remained pending and arguments thereon were addressed and heard on 19.02.2013. During the hearing, it prima facie appeared that the claim in suit was hit by the Benami Transactions (Prohibition) Act, 1988. However on the plea of the counsel for the plaintiff that the defendant had not sought rejection of the plaint on this ground and he was as such not prepared to address on the said aspect, opportunity in this regard was granted and after hearing counsels on this aspect also orders were reserved. 7. Though for consideration of the aspect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laint is of the cause of action having accrued to him within three years prior to the institution of the suit on the defendant on 24.07.2008 resigning from VIL and the plaintiff terminating the services of the defendant on 02.09.2009 and whereupon the defendant was under obligation to return the shares. The counsel for the defendant has been unable to demonstrate as to how the suit would be barred by time. Even otherwise no merit is found in the aforesaid plea. 10. As far as the bar to the maintainability of the suit on the basis of Benami Act is concerned, the counsel for the plaintiff has argued: (i) that for a transaction to be benami, requires three parties i.e. a transferor, an ostensible transferee and a real transferee from whom the consideration flows to the transferor; (ii) that the transaction of transfer of shares in the present case is bilateral and not tripartite, with the transfer being from Omkam and BGR to the defendant; (iii) that for a transfer to be benami, there has to be a flow of consideration which is also lacking in the present case. Attention is invited to Minutes of the Meeting of the Board of Directors of MPS held on 27.04.2004 (MoM) according cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The MoM which forms the fulcrum of the case of the plaintiff, on page one thereof records receipt of share transfer request from various persons and which were placed before the Board for transfer of shares and contains the resolution of the consent of the Board for such transfers; in the list of transfers mentioned on the said page is included, the transfer of 9,97,150 shares by Omkam and 22,00,000 shares by BGR, both on 27.04.2004 in favour of the defendant. It may be recorded that the said list includes transfer of other shares also by Omkam in favour of others and no consideration for any of the transfers is indicated. However, the second page of the MoM, which according to the defendant has been fabricated and subsequently added to the first page is as under: "TRANSFER OF SHARES IN TRUST The Board was informed by Mr. Peeyush Aggarwal, Chairman of the company that he was transferring 3,197,150 equity shares and 93,970 equity shares of MPS Technosoft Limited to Mr. Sanjiv Bhavnani Managing Director of Visesh Infotecnics Limited and Mr. Karun Jain Executive Director of Visesh Infotecnics Limited respectively, in trust, to be kept in custody and returnable on demand. The afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the company is not to take notice of any such relationship. The object of this Section is to relieve the company from any obligation to take notice of equitable interest in its shares, that is to say, to take notice of rights of third parties in respect of shares registered in the names of any members and to preclude any person claiming a equitable interest in shares from treating the company as a trustee in respect thereof. The effect of Section 153 is that a beneficiary who is not entered as a holder of shares, has no connection with or rights in the company in which any shares are held in-trust by him (Reference 17th Edition 2010 of Ramaiya's Guide to the Companies Act). 15. Unfortunately neither counsel during the hearing adverted to the aforesaid aspect. 16. I have wondered, whether not the MoM aforesaid, are not in the teeth of Section 153 supra. 17. Section 153 bars notice of trust being entered on the Register of Members of the company. The question which arises is whether inspite of the said bar, the company can take notice of such trust in the resolution of its Board of Directors preceding the entry in the Register of Members. I have further wondered whether n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statute book has made Section 153B and 187C not applicable with effect from 13.12.2000 as aforesaid. The legislative intent clearly is in favor of prohibiting the company from taking notice of any trust. 19. The prohibition contained in Section 153, if limited merely to entry on the Register of Members would cease to be any prohibition at all. If it were to be held that the prohibition is limited to taking cognizance of the trust only in the Register of Members and does not extend to taking cognizance on / in records other than the Register of Members, also statutorily required to be maintained by the company, would allow the company to take cognizance of such trusts in the resolution of Board of Directors on the basis of which entries are made in the Register of Members and would make a laughing stock of such prohibition. The same cannot be permitted. What is prohibited to be done cannot be permitted to be done indirectly. As aforesaid, the purpose of Section 153 is to relieve the company from any obligation to take notice of equitable interest in its shares and to prevent persons claiming such interest from approaching the company asserting the same. The interpretation, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am unable to see as to how the case built by the plaintiff does not fall in the trap of benami. The case in nutshell of the plaintiff is of the shares (which are property within the meaning of Section 2(c) of the Benami Act) though in the name of the defendant, being owned by the plaintiff and the present suit has been filed by the plaintiff to enforce rights in the said shares held benami by the defendant and which is clearly within the bar of Section 4 of the Benami Act. 26. The plaintiff even otherwise has been unable to plead a case of "trust‟. The defendant did not stand in the position of a trustee with the plaintiff and merely because the word "trust‟ is used does not allow a transaction to be taken out of Benami Act. Section 4(3)(b) of the Benami Act while carving out an exception in this regard, is applicable only where the person in whose name the property is held is a trustee or stands in a fiduciary capacity qua the beneficiary. Admittedly there is no writing between the parties. The MoM aforesaid also are not signed by the defendant. If there was any iota of truth in the claim of the plaintiff, nothing prevented the plaintiff who was admittedly then the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the Benami Act and render the provisions thereof irrelevant; ii) it is only the purchase of property in the name of wife or unmarried daughter which is exempted from the prohibition and even purchase in the name of son or married daughter has not been given that status; iii) once the legislature has expressly conferred exemption in the name of the wife or unmarried daughter, it is to be deemed that such restricted exclusion cannot be extended or made applicable to others; iv) that in view of the repealed Sections 81and 82, there cannot be the same concept of trusteeship or fiduciary capacity as was the position prior to 1988; and v) that after the repeal of Sections 81 and 82, it is only those instances of fiduciary capacity, such as property of a partnership firm held in the name of one of the partners or property which Mr. X wanted Mr. Y to buy in the name of Mr. X but in violation of that instruction, Mr. Y buying the property in his own name can Y be said to be standing in a fiduciary capacity and as a trustee of X, that the exemption under Section 4(3)(b) of the Benami Act would apply. 30. I find the aforesaid view to have been followed in D.N. Kalia Vs. R.N. Kalia 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn name contrary to the instruction of X who had provided the sale consideration to purchase the properties in the name of X. Thus, the said dicta of the Division Bench also does not come in the way of holding the claim in the present case to be barred by the Benami Act. 34. Similarly, the facts of the recent judgment of the Supreme Court in Marcel Martins Vs. M. Printer (2012) 5 SCC 342 were entirely different. There in the facts, the relationship of trust was found to exist. Such is not the case here. Moreover, the Supreme Court in the said judgment held that in determining whether a relationship is based on trust or confidence relevant to determining whether they stand in a fiduciary capacity, the court shall have to take into consideration the factual context in which the question arises for it is only in the factual backdrop that the existence of a fiduciary relationship can be deduced in a given case. 35. In the present case, the pleas of the plaintiff fall in the genre of "fantastic‟. The prevalent market practice is of giving stock options to the employees and not of "parking‟ the stocks with the employees. 36. Some other obvious inconsistencies going to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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