AI Structured Summary
Not yet generated for this judgment
Judgment
[Per: Ajai Das Mehrotra, Member (Technical)]
The present appeal has been filed by Appellant No. 1, IndusInd Bank Ltd. and Appellant No. 2, Link Intime India Pvt. Ltd., the Registrar and Transfer Agent of the shares of Appellant No. 1, against the impugned order dated 22.12.2023 whereby the Ld. NCLT has allowed the petition filed by Ms. Neetu R Menda who is the sole Respondent in the present appeal.
The brief facts of this case as noted in the impugned order are as under:
CP No. 4770/MB/2018 was filed by Ms. Nitu R Menda under Section 59 of the Companies Act, 2013 seeking directions to the Appellants to restore the name of the petitioner in the register of members as the lawful owner of 5000 fully paid up equity shares of Rs. 10/- each of Appellant No. 1 company (IndusInd Bank Ltd.).
The Appellants had filed MA No. 2404/2019 challenging the maintainability of aforesaid company petition.
The Respondent herein was holding 5000 equity shares bearing distinctive nos. 179891484 to 179896483 under folio number 00916735 of the face value of Rs. 10/- each aggregating of Rs. 50,000/- in Appellant No.1, which is a scheduled commercial private sector bank.
Pursuant to the SEBI Notification issued on 08.06.2018 mandating dematerialization of physical shares held by the investors in any listed company before 05.12.2018, the Respondent made a request by submitting Dematerialisation Request Form (DRF) dated 31.08.2018 to JM Financial Services Limited, a depository participant where Respondent holds Demat Account in her name and also surrendered the original share certificate. The said DRF was forwarded to Appellant No.2, the Registrar and Transfer Agent (RTA) of Appellant No. I vide letter dated 06.09.2018.
The dematerialisation request was rejected by Appellant No.2 on the reason that duplicate share certificate was stated to be issued and the said shares were transferred on 17.04.2015 to one Mr. Navin Amrutlal Chohan. The Respondent wrote to Appellant No.1 vide her letter dated 15.10.2018 stating that she had not transacted with the 5000 equity shares and sought rectification of the Register of Members.
The Appellant No.1 stated that in the year 2015 it had received a request from Mr. Navin Amrutlal Chohan along with transfer deed dated 04.12.2003, the same being re-validated under Section 108 (1D) of Companies Act, 1956 for one-month w.e.f. 29.12.2014 by the Assistant Registrar of Companies, Maharashtra, Mumbai. Based on the re-validated transfer deed, the purchase challan issued by Acumen Shares Services Private Limited dated 03.12.2003, First Information Report filed with the police, indemnity bond, copy of paper advertisement, surety documents and other identification documents, duplicate share was issued to Mr. Navin Amrutlal Chohan on 17.04.2015. Mr. Navin Amrutlal Chohan also got the shares dematerialized on 27.04.2015.
The Respondent claims that she never transferred shares to anyone much less to Navin A. Chohan nor parted with the possession of the shares and the act of issuance of duplicate shares and transferring the same was not justified on the part of the Appellants.
The Respondent submitted that she had never transferred equity shares held by her in Appellant No. 1. She further submitted that the signature of the Petitioner has been forged on the share transfer form and the shares held by her have been transferred by fraud. She claimed that the original share certificate was always in the custody of the Respondent.
The Ld. NCLT allowed the CP No. 4770/MB/2018 and rejected the MA NO. 2404/2019 vide the impugned order and held as under:
“17.We have heard the Counsel for the parties and have gone through the records.
18.It has been argued by the Counsel for the Petitioner that it is a clear-cut case of negligence and recklessness on the part of the Respondents who issued duplicate shares to one Navin Amrutlal Chohan on the basis of some share transfer form submitted by him alleging that he had purchased the shares from the Petitioner in the year 2003. The Counsel for the Petitioner has further pointed out that no information was given to the Petitioner before issuing duplicate certificate to Navin A Chohan. The Counsel for the Petitioner has further argued that the Petitioner continued to be in possession of the original share certificate throughout and the same was produced for dematerialization in the year 2018 which amply proves that the shares were never sold by the Petitioner at any point of time. According to the counsel for the Petitioner, the Respondents had no occasion to issue duplicate shares to Navin A Chohan at the back of the Petitioner. Therefore, having wrongly issued duplicate shares and transferred the same to Navin A Chohan, the Respondents are liable to restore the name of the Petitioner in the register of members of Respondent No. 1 u/s 59 of the Companies Act, 2013.
19.On the other hand, the counsel for the Respondent Nos. 1 and 2 have argued that the present Petition in barred by limitation. It has further been argued on behalf of the Respondents that the NCLT does not have jurisdiction in the matter as it is a case of alleged forgery and fraud as per the own case of the Petitioner and that being so, the Petitioner is liable to be directed to file a civil suit. It has further been argued on behalf of the Respondents that the Petitioner has not even cared to implead Navin A Chohan as a party in the Petition and on this ground also, the Petition is liable to be dismissed.
20.We have weighed the contentions raised by the counsel for the parties and have thoughtfully considered the same.
21.So far as the facts of the case are concerned, there appears to be not much of dispute about the same. Admittedly the Petitioner was the original holder/allotee of five thousand shares of Respondent No. 1. The Petitioner claims that she never sold any of the said shares to anybody much less to Navin A Chohan. On the contrary, the case of the Respondents No. 1 and 2 that on 27.12.2014 Navin A Chohan submitted a request letter along with an original transfer deed, copy of bill of purchase of alleged shares whereby it was requested that Navin A Chohan had lost/misplaced share certificates while shifting and, therefore, duplicate share certificates be issued. On receipt of the said request, the Respondents initiated the procedure of issuance of duplicate share certificates. Navin A Chohan submitted indemnity bond, transfer deed, copy of FIR dated 12.02.2015 and his identity details and on receipt of the said documents, the Respondents issued duplicate share certificate to Navin A Chohan after issuing an advertisement in the newspaper inviting objections against issuance of duplicate certificate as no such objection was received from any quarter, much less from the Petitioner.
22.Having thoughtfully considered the aforesaid facts, we are of the considered view that the Respondents, more particularly Respondent No. 2, hurriedly and illegally proceeded to issue duplicate certificates without following the procedure provided for under the law and without adhering to the rules of natural justice. In our considered view, firstly duplicate shares can be issued only to the person in whose name the shares stand at the time of issuance of such duplicate shares or at the most to the legal heirs in case the original holder is not alive any more. No notice was issued by Respondent No. 2 to the Petitioner even though the address and the particulars of the Petitioner must be available with Respondent No. 2 in its records. Issuance of a notice in a newspaper cannot be said to be sufficient. A public notice is issued when the shareholder himself applies for duplicate certificate to ensure that he/she might not have sold the same and in case any third person has any claim, he can lodge the same with the company before the duplicate shares are issued. There is no procedure prescribed under the law that duplicate shares can be issued at the instance of some person other than the original shareholder or his/her legal heirs in case of death.
23.Secondly, non-issuance of notice on the part of Respondent No. 2 to the Petitioner any time prior to issuance of the duplicate share certificate on the request of Navin A Chohan is a glaring and humongous lapse on the part of Respondent No. 2.
24.Respondent No. 2 has claimed that the signature of the Petitioner on the transfer deed submitted by Navin A Chohan were compared with her specimen signature available in the records of the Respondent No. 2 and the same were found to be similar. However, surprisingly, Respondent No. 2 has not placed on record the specimen signature of the Petitioner. If the signatures of the Petitioner on the Petition are compared with her purported signature on the transfer deed submitted by Navin A Chohan, the same are apparently and starkly different.
25.It is further evident from the record that the Petitioner continued to be in possession of the original certificate in respect of her five thousand equity shares till she submitted the same with Respondent No. 1 on 03.09.2018 for dematerialization through her depository participant namely JM Financial Services Limited. Respondent No. 2 in its letter dated 28.09.2018 addressed to JM Financial Services Limited admitted that the original share certificate was submitted for dematerialization and the said certificate was cancelled and retained by Respondent No. 2. It is, therefore, clear that the Petitioner continued to be in possession of the original share certificate in respect of five thousand shares till September 2018 and as such the question of the shares having been sold to Navin A Chohan or anybody else in the year 2003 or any time thereafter does not arise. It further establishes that Navin A Chohan had put forward a false and concocted story with regard to the loss of share certificate. Here it cannot be overlooked that prior to dematerialization of shares, the sale-purchase transaction of shares used to take place by way of share transfer form which were mandatorily required to be accompanied by original share certificate. It is, thus, writ large that Respondent No. 2 issued duplicate shares and also transferred the same to Navin A Chohan without exercising due diligence for which the Petitioner cannot be made to suffer. Here we are constrained to observe that in the given circumstances the possibility of connivance of Respondent No. 2 or its officials with Navin A Chohan cannot be ruled out.
26.The objection raised by the Respondents that Navin A Chohan was a necessary party and should have been impleaded in this case by the Petitioner is not sustainable. It is the definite case of the Petitioner that she never sold any shares to Navin A Chohan and this fact stands proved from the circumstance that the Petitioner never parted with the possession of the share certificate in favour of the transferee or Navin A Chohan and till the year 2018 when the original shares were submitted with the Respondents for dematerialization, the Petitioner continued to be in possession of the original share certificate. Even otherwise the Petitioner had no privity of contract with Navin A Chohan. As a matter of fact, there was a complete failure on the part of the Respondents to exercise the expected level of due diligence while acceding to the request from Navin A Chohan for issuance of duplicate share certificate. The matter was not probed at all by Respondent No. 2 when the request for issuance of duplicate share certificate was received. Surprisingly, even when the original certificates were submitted by the Petitioner for dematerialization in the year 2018, the Respondents simply informed the Petitioner that duplicate share certificate has been issued against the shares of the Petitioner and the same has also been transferred to Navin A Chohan and further that the Petitioner should take up the matter with Navin A Chohan. Even at that stage, Respondent No. 2 did not wake up to the fact that some fraud had been committed as the original shares were still in possession of the Petitioner. This simply shows the callous attitude of Respondent No. 2 in dealing with the whole matter. The Respondent company is custodian of the shareholders and it was required to exercise utmost care and caution while issuing duplicate share certificate which it has not done and in our considered view, the Petitioner cannot be non-suited on the technical ground of non-impleadment of Navin A Chohan with whom she never transacted at any point of time.
27.The Counsel for the Respondent has argued that since a question of forgery of the signatures of the Petitioner and some fraud committed in getting the duplicate share issued is involved, the matter cannot be decided by this bench as to establish and prove the allegations of fraud and forgery, recording of evidence in detail is required which cannot be done in summary proceedings and therefore, the Petitioner be directed to file a civil suit. In support of the contentions the Respondents have relied upon Aruna Oswal vs. Pankaj Oswal and others (Civil Appeal No. 9340 of 2019 decided on 06.07.2020) whereby it has been held by the Hon’ble Supreme Court that with regard to dispute as to right, title and interest in the securities, the finding of the Civil Court is to be final and conclusive and the same cannot be decided by NCLT.
28.We have thoughtfully considered the aforesaid contention raised on behalf of the Respondents and are of the considered view that the said contention is not correct nor the law laid down in the cited case can be applied to the facts and circumstances of the present case. In this context, a reference can be made to the law laid down by the Hon’ble Supreme Court in Shashi Prakash Khemka (dead) through LRs vs. NEPC Micon and others 2019 SCC online SC 223 whereby it was held that matters in respect of which powers have been conferred on the NCLT, the jurisdiction of Civil Court is completely barred u/s 430 of the Companies Act, 2013. It was further held by the Hon’ble Supreme Court that relegating the parties to civil suit would not be the appropriate remedy. In this case also, the issue involved was the transfer of shares and the controversy, which was to be decided, was whether the shares were transferred rightly or wrongly by the company.
29.In this very context, a reference can further be made to the law laid down in Adesh Kaur vs. Eicher Motors Limited 2018 (7) Supreme Court cases 709 whereby it was held that the Tribunal (NCLT) was absolutely correct in not relegating the Appellant to any further proceedings as this was an open and shut case of fraud in which the Appellant has been the victim and the Respondent company the perpetrator. In this case also, the company had similarly issued duplicate share certificate who further transferred the same to a third party and further the RTI circular dated 09.05.2001 was not followed while issuing duplicate shares nor the Stock Exchanges were informed by the company. In the instant case also, the Respondents issued duplicate shares to a third party at the back of the Petitioner by not exercising due diligence nor the Petitioner was informed at any time prior to issuing the duplicate share certificate which is a gross illegality on the part of the Respondents. A further reference can also be made to the law laid down in Howrah Trading Company Limited v. Commissioner of Income Tax Calcutta AIR 1959 SC 775 whereby it has been held that the company recognizes no person except one whose name is on the register of members. A transferee or purchaser of shares cannot be treated as a member or a shareholder till the shares are transferred in his name. Therefore, as per Section 46 of the Companies Act, 2013 duplicate shares can be issued only to the shareholder/member and not to any other person, whereas in this case the Respondents issued duplicate certificate at the instance of Navin A Chohan without the knowledge/permission of the Petitioner in whose name the shares stood recorded at that point of time.
30.No other points have been raised.
31.As a result of the above discussion, it is held that Respondents No. 1 and 2 illegally and unlawfully transferred five thousand equity shares held by the Petitioner in Respondent No. 1 after issuing duplicate shares against the shares of the Petitioner and therefore, the Respondents are hereby directed to rectify the register and to restore the five thousand shares held by the Petitioner to her within a period of one month from the date of this order. In the alternate, Respondent Nos. 1 and 2 shall jointly and severally compensate the Petitioner by paying damages equivalent to today’s market value of the shares as per the closing rate of National Stock Exchange. The Respondents shall further pay a cost of Rs. 25,000/- to the Petitioner. The Company Petition stands allowed accordingly in the aforesaid terms. M.A. No. 2404/2019 stands rejected.”
The Ld. Counsel for the Appellants submitted that the Ld. NCLT erred in allowing the aforesaid company petition filed by the Respondent. It was submitted that the Appellants No. 1 and 2 have followed due procedure and they cannot be held liable for recording the shares in the name of Mr. Navin A Chohan. The Appellants submitted that the impugned order deserves to be set aside as the Ld. NCLT failed to consider that:
The scope of enquiry under Section 59 of the Companies Act, 2013 is extremely limited and as per settled law, the proceeding is summary in nature.
The NCLT does not have the jurisdiction to determine disputed questions of title and allegations of fraud and forgery in a proceeding for rectification under Section 59 of the Companies Act, 2013.
The NCLT is not empowered to decide and/or grant reliefs in relation to setting aside of share transfer forms in a Petition under Section 59 of the Companies Act, 2013.
The Appellants had exercised due caution and conducted proper diligence prior to issuance of the duplicate share certificate in favor of Mr. Chohan and had acted in accordance with applicable law(s) / regulations for issue of duplicate share certificate to unregistered holder.
The Petition was liable to be dismissed on account of non-joinder of necessary parties as Mr. Navin A Chohan was not impleaded.
The Petition was barred by limitation as the Respondent had knowledge regarding the transfer of the Shares since 2015.
The Ld. Counsel for the Appellants submitted that the issue here was not a matter for rectification of register under Section 59 of the Companies Act, 2013 as already there was a share transfer form duly executed. It was submitted that even if we assume that it was a fraudulent transfer which was recorded, it is still not a matter covered under Section 59 of the Companies Act, 2013 as the said section deals only with rectification of register. It was submitted that only Civil Courts have jurisdiction over such matters. It was submitted that the companies are not liable to make good the loss to a shareholder regarding such fraudulent transfer. It was also submitted that the Ld. NCLT has no power to levy damages under Section 59 of the Act.
The Learned Counsel for the appellant submitted that Section 59 of the Act is ‘pari materia’ with Section 111 of the Companies Act, 1956. The Learned Counsel for the appellant relied upon the decision of Hon’ble Delhi High Court in the case of Shazia Rehman v. Anwar Elahi and Others, reported in 2023 SCC OnLine Del. 4807, especially, para 21 of the said judgment which is reproduced below:
“21.Thus, in the present mater, the question relates to disputed title and fraudulent transfer of the Transferred Shares. Therefore, learned NCLT, being a summary jurisdiction, is not empowered to decide such questions and said questions can only be decided by a civil courts i.e. this Hon’ble Court. Accordingly, the jurisdiction of this Hon’ble Court is not barred.”
The Learned Counsel for the appellant further relied upon the judgment of the Andhra Pradesh High Court in the case of Ms. Praga Tools Corporation Ltd. v. M.R. Patny and Others, reported in AIR 1968 AP page 320, on the issue of whether an order of damages can be passed. The reference was made to para 12, 13, 14 and 15 of the said judgment which are reproduced below:
“12.Mr. Sankar Rao contends that the above provisions entitle the company for sufficient cause to rectify the register. In support of this argument, the decision in Ottos Kopje's case (supra), has been pressed into service. That was a case in which the company refused to transfer the shares without further investigation but in the meanwhile, the transfer deed, the certificate and the transfer fee were demanded back by and returned to the proposed transferee one Mr. Goode. Goode then moved under section 35 of the English Companies Act, 1862 that the register of members of the company might be rectified by inserting his name therein as holder of the 4300 shares in question and that the company might be ordered to pay him the damages suffered by him by reason of their refusal to register him as a shareholder, or in the alternative that the company might be ordered to pay him the highest market value of the shares since the tender of the documents on the 6th April, 1892. One of the articles of association of the company says that "all instruments of transfer shall be deposited with the company, and (if required) reasonable evidence shall be given to prove the title of the transferee, and thereupon the secretary shall register such transferee as a member." When the matter came up before Stirling J., the learned Judge held that no order for rectification could be made but that the case was governed by the decision in In re Bahia and San Francisco Railway Company the certificate purporting to be a certificate that Gardner was the owner of the specific shares, the numbers of which were given Accordingly he directed an inquiry as to what damages had been sustained by Goode in consequence of inability of the Company to register him as the transferee of the shares. The Chief Clerk accordingly assessed the damages according to the value of the shares on that day, which was accepted Before the Appellate Court no question as to the validity of the order made by Stirling J., was raised and no appeal from that order had ever been bought It may also be stated that before the Appellate Court for the respondent Goode it was however stated that Stirling, J., had held in another case-Ex Parte Sandys that when relief is given under section 35, the measure of damages is to certain extent discretionary, but that the respondent is willing to waive all further remedy at law, and to have the application treated as an action for dam-ages at common law, to which the appellants consented. Lindley L.J., dealing with In re Bahia and San Francisco Railway Company' said that that case was decided upon the footing that the company is bound by an instrument under its common seal and is estopped by the certificate from denying the validity of the shares; but to give a person who has dealt on the faith of the certificate a right of action against the company there must be some breach of duty towards him by the company. At page 625 the learned Lord Justice said:
"A purchaser of shares can come to the Company and produce the certificate and transfer, and say, "Register me as the holder of these shares" and if the transfer is in order and company is estopped from denying the validity of the shares, they fail in their duty towards him if they do not register him, and an action for that breach of duty will lie. Supposing that I am right, and that Goode's cause of action was the improper refusal of the company to register him, the company, could not say in answer to that, "Your transferee, Grandeer, was wrongly on the register." Goode would be in a position no say to the company, You are estopped from raising that defence, and you must register me "and if they refused there would be a breach of duty on their part which would be actionable, and in respect of which they would have to pay damages. That is the ground upon which Goode would succeed in an action at law in recovering damages from the company."
13.Earlier however, Lindley L.J., did make an observation that the Court has no Jurisdiction under Section 35 of the Companies Act to direct the company to pay damages except in cases where an order is made for rectification of the Register. He said "I only make this remark because it must be borne in mind that damages without rectification cannot be obtained by a summons under Sec. 35 of the Act of 1862 instead of by an action at law."
14.It is contended by Smt. Jayashri Sarathy that the above statement of Lindley L.J. was a general one and was in fact made obiter in that case. Strictly speaking under section 35 of the English Companies Act, corresponding to section 38(1)(2) of the Indian Companies Act, damages can only be ordered if the Court orders rectification of the register. Where rectification is refused, there is no question of any damages being awarded by the company under that section. No doubt in Balkis Consolidated Company's case it was an action at law brought to recover damages and was not an application under Section 35 of the English Companies Act, while in In re Bahia and San franciseo Railway Company's case the Court had under Section 35 ordered to restore T.'s name to the register and only on a case stated the question of damages arose.
15.It is, therefore clear that it is only after rectification that the question of awarding damages would arise. The observations of Lindley L.J., were made in a case where that question would have arisen but for the fact that there was no appeal against the order of Stirling, J. that no rectification could be made. Even though Lindley L.J., observed that no damages with-out rectification can be obtained by a summons under Section 35 of the Act of 1862 instead of by an action at law, the Appellate Court proceeded to assess the damages in view of the consent of the parties to treat it as an action at law. In our view also, whether those observations are obiter or not, they are entitled to great weight and even on a plain reading of section 33(1) and (2) no question of damages will arise without rectification of the register and since no rectification can be ordered, inasmuch as the shares have already been split in 1946, the respondent. M.R. Patny's legal representatives cannot be registered as holders of the shares. In view of this conclusion, it is unnecessary for us to consider the other question, namely what is the measure of damages.”
The Ld. Counsel for the Appellants further submitted that they had informed Mr. Navin A Chohan that the shares were held by the Respondent and had informed him about the documents to be submitted for issuance of duplicate share certificate. All necessary documents were submitted by Mr. Chohan which were duly verified before the issuance of duplicate share certificate in the name of Mr. Chohan. Further, in August 2015, the Respondent had written to the Appellant for change of her address and contact details. In response to the said letter, the Appellant No. 2 had informed the Respondent that the shares had already been transferred to the name of Mr. Chohan. Despite this, the Respondent had not taken any action. Again, on 31st August, 2018, the Respondent requested for dematerialization of shares to her depository participant which was rejected by the Appellant informing that the duplicate share certificate have been already been issued to Mr. Chohan.
It was the submission of the Ld. Counsel for the Appellants that they cannot be held liable for the alleged forgery by Mr. Chohan.
The Ld. Sr. Counsel for the Respondent on the other hand, referred to para 4 of page 5 of the Reply which reads as under:
“4.Before delving in the details of grounds for dismissal of the Appeal, the Respondent has set out below the admitted facts which demonstrate the gross illegality and lack of diligence on the part of the Appellants:
4.1.That the Respondent has owned 5,000 equity shares issued by Appellant No. 1 having a face value of INR 10/- bearing distinctive nos. 179891484 to 179896483 under folio number 00916735 ("Respondent's Shares") since 1994 (see para 3 and 4 of the Appeal).
4.2.That the share transfer deed dated 04.12.2003 ("Share Transfer Deed") for seeking registration of a purported transfer of the Respondent's Shares to the Purported Transferee, was submitted without the original share certificates corresponding to the Respondent's Shares (see para 5 of the Appeal).
4.3.That the Share Transfer Deed was purportedly signed as of 04.12.2003 in Mumbai, India (see page 137 of the Appeal).
4.4.The Share Transfer Deed was sent to the Appellant No. 2 vide letter dated 27.12.2014 (see page 136 of the Appeal), more than 11 years after it was allegedly signed.
4.5.Though the Share Transfer Deed was sent on 27.12.2014, its revalidation was done on 29.12.2014 (see para 5 of the Appeal read with page 137 of the Appeal).
4.6.That the original share certificates corresponding to the Respondent's Shares were well and truly within the possession of the Respondent (para 12 of the Appeal).
4.7.That in absence of original share certificates, the Appellants engaged directly with the Purported Transferee, and issued and handed over the share certificates for the Respondent's Shares to the Purported Transferee, despite the Respondent being the registered holder of the said shares in the register of the Appellant No. 1. Admittedly, no notification of this process was ever issued to the Respondent (para 7 to 9 of the Appeal).
4.8.That the Appellant No. 2 vide letter dated 13.02.2015 had asked the Purported Transferee to provide the following documents for issuance of duplicate shares:
(a)FIR/police complaint for loss of shares, which should set out inter alia the name of company, folio, no., and the name of the registered shareholder
(b)Purchase contract in original or duly certified by the concerned SEBI registered broker
(c)Delivery challan in original or duly certified by the concerned SEBI registered broker
(d)Proof of payment in original or duly certified by the concerned SEBI registered broker
(e)Indemnity Bond duly attested and affirmed by either SEM or Notary
(f)Proof of identification duly attested by Special Executive Officer or Notary Public of your bank manager.
(g)Letter from bank manager of the bank identifying the Purported Transferee and attesting his signature
However:
(a)the Purported Transferee had not provided a copy of his FIR complaint filed with the police station in Ahmednagar. Maharashtra. The document provided is a non-cognizable report ("NCR") and not a copy of the FIR/ complaint (see page 151 of the Appeal). Noticeably, the NCR does not specify name of the registered shareholder and whether the share certificates were annexed with any transfer deed duly signed or not, which was a clear pre-requisite as per the letter issued by the Appellant No. 2.
(b)No purchase contract, delivery challan or proof of payment was ever provided by the Purported Transferee. The Purported Transferee only provided a bill dated 03.12.2003 issued by an Acumen Share Services Private Limited (see page 150 of the Appeal), which neither demonstrates a concluded sale of the Respondent's Shares nor confirms that purchase consideration was paid for the sale. In fact, the amount of consideration mentioned in the said bill (that is INR 2,08,750+INR 1,000 brokerage), is different from the purchase consideration mentioned in the Share Transfer Deed (that is INR 2,15,000).
(c)The indemnity issued by the Purported Transferee (see page 158 of the Appeal) also conspicuously avoids mentioning the amount of consideration paid for the Respondent's Shares and the person to whom such money was paid. Further, while the Purported Transferee claimed that the share certificates corresponding to the Respondent's Shares "have been misplaced while shifting" (see letter dated 27.12.2014 at page 136 of the Appeal), the indemnity bond states that the share certificates "has/have been lost or misplaced in transit and the same is/are not traceable despite best and bonafide efforts". Evidently, no proof of such loss in transit was provided by the Purported Transferee, despite it being one of the documents which Appellant No. 2 had requested vide the letter. Despite this glaring defect, the Appellant No. 2 proceeded to issue and handover the share certificates to the Purported Transferee (para 6 of the Appeal, and Appeal Vol. 1 from pages 148-176).
(d)That the newspaper advertisement (see page 188 of the Appeal) for giving notice of the loss of share certificates corresponding to the Respondent's Shares was only issued in Mumbai despite the Appellant No. 1 having shareholders across India, and the Respondent herself having always resided in Bangalore, Karnataka, India. To the best of the knowledge of the Respondent, the said advertisement was also published in a Marathi newspaper.
4.9.That the purported correspondence issued by the Appellant No. 2 on 29.08.2015 for intimating the Respondent of the transfer of Respondent's Shares to the Purported Transferee was issued to a wrong address despite the Respondent having communicated her correct address vide letter dated 06.08.2015 (Appeal, Vol. 1 page no. 115 to 116).
4.10.That after the purported correspondence issued by the Appellant No. 2, the correspondence between the Appellants and the Respondent with respect to the Respondent's Shares took place only in 2018 (para 11 to 12 of the Appeal).”
The Ld. Sr. Counsel for the Respondent emphasized that as per Section 56 of the Companies Act, 2013, the transfer deed has to be accompanied by original proper instrument. He also relied upon the circular issued by the SEBI dated 09.05.2001, which was issued to all the share transfer agents and registered transfer agents. It was submitted that this circular is still followed. Reference was made to para 23 at page 5 of the circular which reads as under:
“23.The Company/ STA shall necessarily obtain the following documents duly executed by the claimant, prior to issue of duplicate shares to him:
a. Indemnity for issue of duplicate Share Certificate's in the name of the person, in whose name the duplicates are being issued that he has not sold/disposed off the involved shares or acted in any manner by which any interest of third party would have been created, as per the applicable Annexure as detailed here under-
Annexure 8- Indemnity by registered holder
Annexure 8A-General purpose indemnity
Annexure 9-Indemnity by unregistered transferee/holder in due course
Annexure 10-Affidavit by transferee
Annexure 11-Indemnity by transferee for issue of duplicates without producing transfer deeds
Annexure 12-Letter from buyer under provisions of Section 108 of Companies Act, 1956.
b. Final Court order for issue of duplicate shares required in case of a third party stop transfer (third party' does not include genuine bonafide transferee).
Company/ STA to
i.inform all the Stock Exchanges where the shares are traded regarding the loss of shares in lieu of which duplicate shares are being issued, if not already informed
ii.issue an advertisement in a widely circulated newspaper if the value of the shares is greater than Rs 10,000
In case the Company/ STA issues duplicate share certificate based on any other documents, then the Company/ STA shall be solely responsible for the issue of such duplicate share certificates.”
It was submitted that as per procedure the company was required to obtain indemnity bond in case of issue of duplicate share certificate and the said bond was to be given by the registered shareholder only. It was specifically mentioned in the circular that if duplicate is issued on any other document, the company and the RTA shall be solely responsible. It was further submitted that it was the duty of the company to inform the last registered shareholder regarding claim for loss of share certificate and the duplicate share certificate should have been issued only to the shareholder existing in the register of the company, i.e. previous registered shareholder, the Respondent in this case.
The Ld. Sr. Counsel for the Respondent submitted that the shares transfer deed is available at page 137 of the Appeal Paper Book (APB) where following discrepancies can be noticed: a) the consideration is shown as Rs. 2,15,000/- whereas the alleged broker notes of Acumen Share Services Pvt. Ltd. placed at page 150 of the APB reflects consideration as Rs. 2,09,750/-; b) the validation stated to be done by Assistant Registrar of Companies, Maharashtra, Mumbai (AROC) is dated 29.12.2014 and quotes Section 108(1-D) of the Companies Act, 1956. It is noteworthy that Companies Act, 2013 had come in force in 2013 and specifically, Section 56 of the Companies Act, 2013, which corresponded to Section 108 of the Companies Act, 1956 was made applicable w.e.f. 01.04.2014 vide Notification dated 26.03.2014, copy of which was handed over by the Ld. Sr. Counsel for the Respondent; c) the transfer deed is dated 04.12.2003 and as per provisions of Section 56 of the Companies Act, 2013, the shares have to be delivered to the company by the transferor or the transferee within a period of 60 days from the date of execution, and this restriction has been violated in this case; d) the Respondent, Neetu R Menda, denies that the transfer deed carry her signature. Even on specific request, sample signatures of Respondent in the records of Appellant were not given before the Ld. NCLT.
The Ld. Sr. Counsel referred to letter dated 27.12.2014 at page 136 of APB written by Navin A. Chaohan to Link in-time India Pvt. Ltd. wherein he has stated that he had purchased 5,000 shares of Folio No. 00961735 from the market, and “these shares have been misplaced while shifting”. It is noteworthy that letter dated 27.12.2014 encloses transfer deed wherein endorsement by AROC is dated 29.12.2014, though the receipt on the letter is dated 05.01.2015. He submitted that the Respondent had informed the Appellant vide letter dated 06.08.2015 that she has changed her address and had requested for up-dation of address in Appellant’s records. In the said letter her email ID and her Phone No. are mentioned, however, strangely, the Bank responded by letter dated 29.08.2015 at her old address. No email or phone call was made to the Respondent by the Appellants, as per assertion of Respondent which was not rebutted by the Appellants. It was through this letter they had purportedly informed that there are NIL share in her portfolio and the shares have already been transferred to Navin Amrutlal Chaohan on 17.04.2015. The said letter was never received by the Respondent, as per her submission, as it was sent at the old address. The bank having acknowledged the letter for change of address, has shown negligence in sending response to the Respondent at her old address. The advertisement given by the bank is placed at page 119 of the APB which shows that advertisement was published in Marathi newspaper in Maharashtra whereas the Respondent (Neetu R Menda) resides at Bangalore and it was not possible for her to be aware of the said advertisment.
The Ld. Sr. Counsel submitted that at page 158 of the APB is the indemnity bond given by the Navinchandra Amrutlal Chaohan wherein at page 159 the details of payments like cheque no. and date, drawn on, amounts are all left blank as well as confirmation by Broker has been left blank. The bank had shown extreme negligence in not ascertaining that the payments have been made for the said shares. At page 151 of the APB is the purported report of the police station Ahmednagar which strangely states that the application was filed on 05.02.2015 and was investigated the same day and the relevant share certificate was not found and as per the said report, the shares were lost within the limit of Bhingar Police Station. In the letter to the appellant bank Mr. Navin A. Chaohan has stated that the shares have been misplaced while shifting, while in the certificate of Police Station it is stated that the shares certificate have been misplaced in February 2014 in the Bhingar area and in the indemnity bond it has been mentioned (page 159 of the APB) that the shares certificates have been lost or misplaced in transit. All the three documents give three different version regarding non-possession of share certificate.
The Ld. Sr. Counsel referred to the written submissions dated 22.09.2025 filed by them. He stated that SEBI had through Circular no. 1 (2000-2001) dated May 09, 2001, given guidelines which have to be mandatorily followed by all registered Registrar and Share Transfer Agents and Companies listed on Stock Exchanges. According to para 23 of the said guideline the indemnity has to be given by registered holder. It is also mentioned in the said rules that in case Company/STA issued duplicate share certificate based on any other documents, then the Company/STA shall be solely responsible for the issue of such duplicate share certificates:
The Ld. Sr. Counsel then referred to page 23 and 24 of the said written submissions wherein SEBI guideline are given for share certificate reported to be missing/lost/stolen by third party claimant (i.e. holder in due course or beneficial owner or unregistered transferee) and subsequently not transferred. As per the said guidelines it is necessary to inform the last registered holder of the claim for loss of share certificates by the third party and issue of duplicate share certificate to the claimant (previous registered holder).
The Ld. Sr. Counsel referred to Circular no. 19/2014 dated 12.06.2014 issued by the Ministry of Corporate Affairs according to which the Appellant was it get itself satisfied suitably with regard to justification of delay in submission of share certificate/transfer deed for transfer of shares. It was submitted that no such exercise was done by the Appellants.
The Ld. Sr. Counsel for the Respondent further submitted that there were many negligent errors done on the part of the Appellant, namely, (a) They had allowed transfer without original share certificate and had issued duplicate share certificates to third party on the strength of transfer deed which was more than 11 years old. (b) The transfer deed was validated by the AROC after the date of submission of letter in December 2014 under the Companies Act, 1956 whereas the Companies Act, 2013 had already come into force. (c) No indemnity was taken from original shareholder and even indemnity given by the transferee was incomplete. (d) The consideration stated in the broker’s challan and in the transfer deed were different. (e) The transferee had given three different reasons for loss of share certificates before the police in Non-Cognizable Report (NCR), in the letter to the company and in the indemnity bond. (f) The intimation of transfer was given by the company to the Respondent at the wrong address, whereas the Respondent had communicated her current address to the company. (g) The advertisement for duplicate share certificates was issued in a Marathi paper at Mumbai whereas the original holder resided in Bangalore.
It is submitted that the Respondent relies upon the decision of the Hon’ble Supreme Court in the case of Chalasani Udaya Shankar and Others v. M/s. Lexus Technologies Pvt. Ltd. and Others in Civil Appeal Nos. 5735-5736 of 2023 rendered on 09.09.2024. The Ld. Sr. Counsel relied upon the judgment from para 22 onwards.
The Learned Counsel for the Respondent submitted that decision of Ld. NCLT is correct and relied upon the judgment of the Hon’ble Supreme Court in the case of Adesh Kaur v. Eicher Motors Limited and Others reported in (2018) 7 SCC 709 in a similar case.
The Ld. Counsel for the Appellants in rejoinder submitted as under:
The aforesaid judgment in the case of Chalasani case is not applicable as the other side was before the court and all relevant parties were present and it was recording of reflection of the name of the shareholder in the register whereas in the present case transfer has happened based on share transfer deed, the transferee was not made a party and no investigation was done. Even in Chalasani case no damages were awarded where in this case damages were awarded without such prayer in the petition before the Ld. NCLT. The Ld. Counsel for the Appellant relied upon the judgment in the case of Praga Tools Corporation Ltd., 1966 SCC OnLine AP 171.
The provisions relating to dematerialisation of shares came w.e.f. 2004 and the Respondent never applied for dematerialisation of shares till 2018.
The validation was done by AROC on 29.12.2014 and though the date of forwarding letter was 20.11.2014, the inward date recorded by the company was 05.01.2015, i.e. the letter was tendered on 05.01.2015. The transfer form and validation were done under old Act of 1956 as no provision exists in the new Act of 2013. The Appellant had checked the signatures on the transfer deed with its records before allowing the transfer.
We have heard the Ld. Counsels for the Appellants and the Respondent and have perused the records.
At the outset, we will like to examine the claim of the Appellants that the petition filed before the Ld. NCLT by the Respondent herein was barred by limitation. At page 115 of the APB is a letter dated 06.08.2015 written by the Respondent to Appellant No. 1 seeking change of address and up-dation of contact details. This letter is scanned below:
The response to the said letter was issued by the Appellant No. 2 vide letter dated 29.08.2015 which is also scanned below:
Surprisingly, the said response letter is addressed to the old address of the Respondent instead of the new address. This shows extreme negligence and also hints towards connivance. As per the said reply, the Appellant No. 2 has informed the Respondent that the shares stated to be held by her are already transferred to Mr. Chohan on 17.04.2015. Since the letter was issued to wrong address, there is substance in the claim of the Respondent that she was not aware of any such response. The Respondent also asserted that despite her mobile number and email ID available in her letter dated 06.08.2015, no communication was received by her in email or mobile. It was only when the Respondent submitted her original share certificate along with request for dematerialization with her Depository that she came to know of the fraudulent transfer of shares to Mr. Chohan through letter dated 28.09.2018 issued by the Appellant No. 2. The Appellant No. 2 informed the Respondent vide the said letter dated 28.09.2018 that they have issued duplicate share certificate for 5000 shares to Mr. Chohan on 17.04.2015, and then only the fraud was discovered by the Respondent. The fraudulent issue of duplicate share certificate to Mr. Chohan by Appellant No. 2 came to the knowledge of Respondent in September, 2018 and the petition for rectification of register was filed on 23.11.2018, and was numbered as Company Petition No. 4770/MB/2018. The petition was filed in short time after discovery of fraud and thus it was well within limitation. The Appellants claim regarding non-maintainability of petition of the Respondent on the ground of limitation has no ground to stand and is rejected.
The Respondent had applied under Section 59 of the Companies Act, 2013 to the Appellants for rectification of register as her name was removed without sufficient cause. The relevant provisions of Section 59 of the Companies Act, 2013 are reproduced below:
“59.Rectification of register of members.- (1) If the name of any person is, without sufficient cause, entered in the register of members of a company, or after having been entered in the register, is, without sufficient cause, omitted therefrom, or if a default is made, or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debenture holders residing outside India, for rectification of the register.
(2)The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order, either dismiss the appeal or direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order or direct rectification of the records of the depository or the register and in the latter case, direct the company to pay damages, if any, sustained by the party aggrieved.
(3)The provisions of this section shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal.
(4)Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned.”
(Emphasis supplied)
From the bare perusal of the aforesaid Section, it is clear that the shareholder can invoke the said provisions if her name is removed from the register of members without sufficient cause. As per sub-section 2, the Tribunal also has the power to direct the company to pay damages if any loss is sustained by the aggrieved party.
We find that the Appellants were negligent while handling the request of Mr. Chohan regarding issue of duplicate share certificate and transfer of shares in his name. At this stage, we like to refer to Section 46 of the Companies Act, 2013 which governs the process of issue of duplicate share certificate. The said provisions are as under:
“46.Certificate of shares.- (1) A certificate, [issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary], specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.
(2)A duplicate certificate of shares may be issued, if such certificate —
(a)is proved to have been lost or destroyed; or
(b)has been defaced, mutilated or torn and is surrendered to the company.
(3)Notwithstanding anything contained in the articles of a company, the manner of issue of a certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be entered in the register of members and other matters shall be such as may be prescribed.
(4)Where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner.
(5)If a company with intent to defraud issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than five times the face value of the shares involved in the issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees ten crores whichever is higher and every officer of the company who is in default shall be liable for action under section 447.”
The share transfer deed was lodged with the Appellants on 05.01.2015 by Mr. Chohan, at which time the provisions of Section 56 of the Companies Act, 2013 have been notified w.e.f. 01.04.2015. The Companies (Share Capital and Debentures) Rules, 2014 were prescribed governing issue of shares. The relevant part of Section 56 is as under:
“56.(1) A company shall not register a transfer of securities of the company, or the interest of a member in the company in the case of a company having no share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities:
Provided that where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit.
(2)Nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.
(3)Where an application is made by the transferor alone and relates to partly paid shares, the transfer shall not be registered, unless the company gives the notice of the application, in such manner as may be prescribed, to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice.
(4)Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted—
(a)within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;
(b)within a period of two months from the date of allotment, in the case of any allotment of any of its shares;
(c)within a period of one month from the date of receipt by the company of the instrument of transfer under sub-section (1) or, as the case may be, of the intimation of transmission under sub-section (2), in the case of a transfer or transmission of securities;
(d)within a period of six months from the date of allotment in the case of any allotment of debenture:
Provided that where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.
(5)The transfer of any security or other interest of a deceased person in a company made by his legal representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the holder at the time of the execution of the instrument of transfer.
[(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.]
(7)Without prejudice to any liability under the Depositories Act, 1996, where any depository or depository participant, with an intention to defraud a person, has transferred shares, it shall be liable under Section 447.”
(Emphasis supplied)
As per the said provisions and the applicable Rules framed thereunder, a company cannot register transfer of its security unless the transferor or the transferee furnished the proper instruments of transfer in form SH4 along with original certificate within 60 days from the date of execution of instrument of transfer.
In this case, the share certificates were lodged after several years instead of within 60 days, as the transfer deed dated 04.12.2003 was submitted by Mr. Chohan in January, 2015. There were other discrepancies like the amount of consideration shown in the transfer deed was Rs. 2,15,000/- whereas in the brokerage note, the consideration shown, including brokerage was Rs. 2,09,750/-.
We also note that Mr. Chohan in different documents has given different reasons for loss of share certificate. In letter dated 27.12.2014 addressed to the RTA (Appellant No. 2) at page 136 of APB, the reasons for loss have been written ‘misplaced while shifting’. In the police complaint, the reasons for loss of certificate has been mentioned as “misplaced in February 2014 in the Bhingar area, within the limit of Bhingar Police Station”. In the indemnity bond, the reasons for loss is stated as “lost or misplaced in transit”.
We also note that the indemnity bond given by Mr. Chaohan is not in the format prescribed in Securities Exchange Board of India (SEBI) guidelines. We note that no evidence regarding payment of consideration for the said share was furnished by Mr. Chaohan. The purported broker note has been submitted but no details regarding payment have been furnished. The relevant page of the indemnity bond is scanned below which shows that no details of cheque no., cheque date, bank account, amount and confirmation letter of the broker has been mentioned. This should have been noticed by the Appellants:
The SEBI had issued RTI Circular No. 1 (2000-2001) dated May 09, 2001 to all RTAs stating that the directions therein have to be mandatory followed with immediate effect. These directions were issued pursuant to powers conferred on SEBI under Section 11B of SEBI Act, 1992. The guidelines relevant to decide this case are contained in para 23, 26 and in the “Transfer Norms” given in tabular format annexed with the said Circular. The relevant portion of the guidelines is as under:
“23.The Company/ STA shall necessarily obtain the following documents duly executed by the claimant, prior to issue of duplicate shares to him:
a. Indemnity for issue of duplicate Share Certificate/s in the name of the person, in whose name the duplicates are being issued that he has not sold / disposed off the involved shares or acted in any manner by which any interest of third party would have been created, as per the applicable Annexure as detailed here under –
Annexure 8 – Indemnity by registered holder
Annexure 8A – General purpose indemnity
Annexure 9 – Indemnity by unregistered transferee/holder in due course
Annexure 10 – Affidavit by transferee
Annexure 11 – Indemnity by transferee for issue of duplicates without producing transfer deeds
Annexure 12 – Letter from buyer under provisions of Section 108 of Companies Act, 1956.
b. Final Court order for issue of duplicate shares required in case of a third party stop transfer (‘third party’ does not include genuine bonafide transferee).
Company/ STA to:
i.inform all the Stock Exchanges where the shares are traded regarding the loss of shares in lieu of which duplicate shares are being issued, if not already informed
ii.issue an advertisement in a widely circulated newspaper if the value of the shares is greater than Rs 10,000 In case the Company/ STA issues duplicate share certificate based on any other documents, then the Company/ STA shall be solely responsible for the issue of such duplicate share certificates. ……..
26.In case the Company/STA has effected transfer and dispatched either
i.fake share Certificate/s or certificates with forged last transfer endorsements or ii. transferred missing/ lost/ disputed/ stolen shares despite a FIR/ police complaint/ court injunction order, even if it was inadvertently.
It shall not be competent then for the Company/STA to raise an objection memo, subsequently. In such an event, the Company/STA shall make necessary arrangement of procuring identical quantity of shares, bearing good title, from the open market to be handed over to the transferee duly transferred in his name, as if such procured shares were lodged for transfer by the transferee, within a period not exceeding 60 days from the date of an error or omission detected by the Company/ STA, alongwith all benefits accrued thereon, from the date of lodgement. ………
02- TRANSFER NORMS (FOR Cos./SHARE TRANSFER AGENTS)
Sl. No. Reason for Objection Procedure to be followed by Companies / STAs 0 7 Share Certificate/s reported to be missing / lost / stolen by the third party claimant (i.e. holder in due course or beneficial owner or unregistered transferee) and subsequently not transferred
or subsequently lodged for transfer by a transferee
1. To record caution immediately on the certificate/s involved. 2. To give notice to the third party claimant (TPC) to produce to the Company/STA, the following documents within 30 calendar days from the date of intimation of loss by the TPC, which shall necessarily mention the date of loss, distinctive nos., certificate nos • Copy of Contract Note/Bill/other documentary evidence for purchase of involved share certificates, duly certified by the concerned SEBI registered broker or SEBI registered sub-broker • Copy of postal/ courier slip through which transfer documents sent but lost in transit / stolen (if share certificates lost in transit) • Copies of transfer documents (if retained). • Copy of FIR/acknowledged police complaint, and/ or • Copy of plaint along with confirmation that the Suit filed has been accepted by the Court and Suit no. has been given/ or copy of an order from the Court of competent jurisdiction restraining the Company or its agent from transferring the share certificates, where the market value of share certificates is greater than Rs. 5,000 on the basis of the closing price on any recognised Stock Exchange as on the date of intimation of loss. The requirement of a court order may not be insisted on by the Company/ STA, at their discretion, in case copy of police complaint / FIR is provided for loss of share certificates by Financial Institutions, SEBI registered Foreign Institutional Investors, SEBI registered Mutual Funds, RBI registered Banks and SEBI registered Stock Exchanges, who have also provided an indemnity to the Company/ STA for the quantity of share certificates lost. 1. If the documents as per 7.2 above, are satisfactory, Company/ STA to 0. inform the last registered holder of the claim for loss of share certificates by the TPC 1. immediately inform all the Stock Exchanges where shares are traded, regarding loss reported by the TPC 2. issue advertisement for loss of share certificates at the cost of claimant 3. issue duplicate share certificate to the claimant (previous registered holder) as per General guideline no. 23. 2. If the share certificates are lodged by a transferee with the Company/ STA for transfer after intimation of ‘stop transfer’ request by the TPC: Company/ STA to confiscate the original share certificate/ transfer deed and to issue objection memo and send documents as per 7.2 above and General guideline 6 & 20 to the transferee, facilitating him to make a claim with the concerned broker from whom the documents were received against purc hase.
(Emphasis supplied))
The aforesaid SEBI guidelines given by the said Circular, were applicable when the purported transfer and issue of duplicate share certificate was undertaken by Appellants. As per the guidelines in para 23, the indemnity has to be given by the registered holder in the format prescribed. The registered holder in this case was the Respondent. No indemnity bond was taken from the registered shareholder. It was clearly specified in the said guidelines that “in case the Company/STA issues duplicate share certificate based on any other documents, then the Company/STA shall be solely responsible for the issue of such duplicate share certificates”.
The Appellants had issued an advertisement in a Marathi newspaper in Maharashtra where the registered shareholder was residing in Bangalore and thus could not have come to know of the advertisement. As per the transfer norms, Sl. No. 7, given above, it was the duty of the Company/STA to inform the last registered holder of the claim for loss of share certificate and the duplicate share certificates were to be issued to the previous registered holder as per general guidelines no. 23. The Appellants failed to inform the registered shareholder, the Respondent herein, and thus had been negligent in following the guidelines. The Respondent had also relied upon the General Circular No. 19/2014 dated 12.06.2014 issued by Ministry of Corporate Affairs wherein it was mentioned that the company has to get itself satisfied suitably with regard to justification of delay in submission.
As per the above guidelines, if the share certificates are lodged beyond the prescribed period, it is the duty of the company to be satisfied suitably with regard to justification of delay in submission. From the correspondence of the Appellants with Mr. Chaohan, it is clear no explanation for delay was furnished or was asked for. From the facts of this case and the relevant guidelines listed above, it is apparent that the Appellants had been negligent and have not followed the prescribed procedures for issue of duplicate share certificate.
The Respondent was holding the original share certificate all along, a fact which has not been disputed. It is also apparent that fraud had been played by Mr. Navin Amrutlal Chaohan. In para 10 of the written submissions, the Appellants have submitted as under:
“10.Therefore, the Impugned Order deserved to be set aside as the Petition involves a disputed questions including in particular the question of the Appellants' liability to compensate the Respondent in the form of damages when the fraud was played by a third-party, i.e., Mr. Chohan.”
We note that the Appellant was negligent and had not followed the due procedure in issue of duplicate share certificates. The registered shareholder was nevour kept in the loop and was never informed. As per the law and guidelines prescribed, the duplicate share certificate could have been issued only to the registered shareholder, and not to any body else. A preposterous and irrational preposition has been stated by the Appellants in para 7 of their written submissions, wherein they have stated that they have met this requirement as under:
“4.Steps taken by Appellant No. 2: ……
7.As regards the requirement issuing notice to the last registered holder, the duplicate share certificates were issued to the registered holder itself. The shares were transferred to Mr. Chohan after the duplicate shares were issued in the name of the registered holder. Hence, there was no requirement of issuing a notice to the registered holder.”
Admittedly, share certificates were issued in the name of the Respondent, but the Respondent was never informed nor the share certificates were handed over to her. The shares were handed over to Mr. Chaohan, apparently after issuing them in the name of the Respondent and recording of the transfer simultaneously. This assertion of the Appellant is a proof that duplicate shares were issued at the back of the registered shareholder, without any courtesy of informing her. The company by its action had converted valuable original shares held by the Respondent physically in her custody as worthless paper.
We now look for judicial guidelines on this issue. In Adesh Kaur v. Eicher Motors Limited and Others reported in (2018) 7 SCC 709 the Hon’ble Supreme Court has held as under:
“The present case discloses a very sordid state of facts. The appellant before us is a resident of Punjab, and had acquired in all 903 equity shares in the respondent No. 1-Company. way back in the year 1994-95. This acquisition took place It appears that sometime in 2012, another Ms. Adesh Kaur, who is a resident of Mumbai impersonated the appellant and requested respondent No. 2 to change the address from Punjab to Mumbai. It is not disputed before us that the standard procedure to be followed was not followed by respondent No. 2, and the aforesaid change of address was despite the requirements of Circular No. 1 dated 09.05.2001. The impersonator then went on to execute an indemnity bond by forging the appellant's signature for issue of duplicate share certificates of the 903 equity shares mentioned above. This being done, on 28.09.2012, Respondent No. 2 issued duplicate certificates in favour of the impersonator who, in turn, on 10.12.2012, transferred the said shares to one Vikas Tara Singh, respondent No. 8, resident of Malad, Mumbai by using the forged signature of the appellant. At this stage, it is important to note that respondent No. 8, though served in the present proceedings, has not appeared either before the Tribunal or before the Appellate Tribunal and has not appeared before us. The appellant, sometime in 2014, came to know through the Company Secretary of Respondent No.1 that duplicate share certificates had been given to somebody else who had subsequently transferred them to a third party. As soon as she became aware of the fraud that was perpetrated on her, the appellant requested the Company to issue revalidated fresh share certificates for the said 903 equity shares on 17.09.2014. this was not done, despite repeated reminders for the Since same, a Company Petition was filed on 31.07.2015 before the Company Law Board, which was then taken up under the Amended Act by the National Company Law Tribunal. In a significant order that was passed by the NCLT on 09.11.2016, the NCLT recorded that it was acknowledged, both by the Company as well as by the SEBI, that procedural aspects and due care were not adhered to in the process of issuance of duplicate shares, as otherwise such fraud would easily have been unearthed. …….
We are of the view that the Tribunal was absolutely correct in not relegating the appellant to any further proceedings inasmuch this is an open and shut case of fraud in which the appellant has been the victim, and Respondent No. 2 the perpetrator. Equally, it is clear that the due procedure that has been outlined in paragraph 23 of the RTI Circular dated 09.05.2001 has not been followed. When the duplicate shares were issued, stock exchanges were not informed and neither was an advertisement in a widely circulated newspaper issued as the value of the shares were far greater than Rs. 10,000/-………. We, therefore, direct the Company to rectify its register, insofar as the physical share certificates are concerned, and the concerned depository to rectify the demat records in accordance with this order.”
(Emphasis supplied)
The facts of Adesh Kaur case are quite similar to the present case. The impersonator had got the duplicate share certificate issued. The Hon’ble Supreme Court had directed the company to rectify its register and the concerned depository to rectify the demat records in favour of the original registered shareholder.
Further, in Chalasani Udaya Shankar and others v. M/s. Lexus Technologies Pvt. Ltd. and others, reported in (2024) 10 SCC 303, the Hon’ble Supreme Court has held as under:
“27.In Adesh Kaur vs. Eicher Motors Limited and others , this Court found, on facts, that it was an open-and-shut case of fraud, in which the appellant who had applied for rectification had been the victim, and held that the appellate tribunal was not correct in relegating the appellant to the civil court on the ground that a criminal complaint and a SEBI investigation were pending and in holding that it was not proper for the National Company Law Tribunal to exercise power to rectify the Register under Section 59 of the Companies Act, 2013.
28.In Shashi Prakash Khemka (Dead) through legal representatives and another vs. NEPC MICON (Now NEPC India Limited) and others 5, this Court again had occasion to deal with exercise of power under Section 111-A of the Companies Act, 1956. The Company Law Board’s view had been reversed by the Madras High Court in appeal, whereby the appellants were relegated to the remedy of a civil suit in relation to the issue raised qua the transfer of shares. This Court took note of the earlier judgment in Ammonia Supplies Corporation (P) Ltd. (supra) but noted that Section 430 of the Act of 2013 barred the jurisdiction of the civil court and opined that the effect thereof is that, in matters in respect of which power has been conferred on the National Company Law Tribunal, the jurisdiction of the civil court is completely barred. This Court observed that it is not in dispute that, were a dispute to arise today, remedy of a civil suit would be completely barred and the power would vest with the National Company Law Tribunal under Section 59 of the Companies Act, 2013. Noting that the cause of action in that case had arisen at a stage prior to enactment of the Act of 2013, this Court was of the view that relegating the parties to a civil suit would not be the appropriate remedy, considering the manner in which Section 430 of the Act of 2013 was widely worded.
29.Shashi Prakash Kemka (supra) was followed by the National Company Law Appellate Tribunal, New Delhi, in Smiti Golyan and others vs. Nulon India Ltd. and others6 whereby, the decision of the National Company Law Tribunal, Principal Bench, in relation to rectification proceedings was upheld without relegating the parties to the civil court. Civil Appeal No. 4639 of 2019 filed before this Court against Smiti Golyan (supra) was dismissed on 03.07.2019 and this Court observed that the findings recorded by the National Company Law Appellate Tribunal were absolutely proper and no ground was made out to interfere with the same. …………
32.This would mean that the National Company Law Tribunal exercising jurisdiction under Section 59 of the Act of 2013 has to examine the factual issues to ascertain the substance of the issue before it after removing the cloak of the form of the application. The expression ‘rectification’, as already pointed out, connotes something that ought to have been done but, by error, was not done, or what ought not to have been done but was done, requiring correction. The phrase ‘sufficient cause’ in Section 59 of the Act of 2013 is to be tested in relation to the statutory mandate thereof, i.e., anything done or omitted to be done in contravention of the Act of 2013 or the Rules framed thereunder.
33.……… In Adesh Kaur (supra), this Court observed that if, on facts, an open-and-shut case of fraud is made out and the person seeking rectification was the victim, the National Company Law Tribunal would be entitled to exercise such power under Section 59 of the Act of 2013. This Court rejected the contention that, as criminal proceedings had been initiated, there was a serious dispute and it was not correct for the National Company Law Tribunal to exercise power under Section 59 of the Act of 2013. The contention that the shares had been dematted and were in the name of another person and, therefore, the power of rectification should not have been exercised, was also rejected.”
(Emphasis supplied)
In the aforesaid Chalasani case, following the judgment of Adesh Kaur (supra), it was made clear that in an open and shut fraud case, where the person seeking rectification was the victim, the NCLT would be entitled to exercise such powers under Section 59 of the Companies Act, 2013. It was also noted that the contention that the shares had been dematted and were in the name of another person is not valid ground for not exercising the power of rectification.
In the conspectus of facts and circumstances of this case and judicial guidelines provided by the Hon’ble Supreme Court in the case of Adesh Kaur v. Eicher Motors Limited and Others reported in (2018) 7 SCC 709 (supra) and Chalasani Udaya Shankar and others v. M/s. Lexus Technologies Pvt. Ltd. and others, reported in (2024) 10 SCC 303 (supra), we find that the Ld. NCLT has rightly directed the Appellants to rectify the register and to restore the 5000 shares held by the Respondent herein to her. It is only in the alternative, that the Appellants had been asked to pay damages, which are in the nature of compensation, equivalent to market value of the shares as per the closing rate of National Stock Exchange on the date of the order. We find no reason to interfere in the well-reasoned order of Ld. NCLT. The Appellants have failed to restore what is rightfully the assets of the Respondent and have instead resorted to litigation. The Appellant No. 1 is a large private sector bank with market cap of more than Rs. 70,000 crores and has branches/offices in every nook and corner of the country as opposed to the individual shareholder who has been made to go through the grind, for no fault of hers. In the facts of this case, we deem it appropriate to levy towards cost reimbursement of legal expenses of Rs. 1,00,000/- on the Appellant No. 1 to be paid to the Respondent within two months. The appeal is accordingly dismissed.