Reserve Bank of India v. CRB Capital Markets Ltd.

11. The applicant has, in these circumstances, filed the present application before this Court in Co. Pet. 191/1997, seeking, among other things, a direction to Karvy to transfer and register the 1500 RIL equity shares purchased by the applicant through AGV to the applicant with all retrospective benefits. Rival Contentions

12. In the application, the applicant has pointed out that none of the restraints on transfer of the allegedly tainted shares held by CRB would apply to the present case, as CRB had sold the 1500 shares forming subject matter of dispute much prior to any such restraint being put in place, either by this Court or by the RBI. As such, the right of the applicant, to transfer of the shares in its favour, it is contended, cannot be affected either by the orders passed by this Court or by the Circulars issued by the RBI.

13. Though no formal reply to the present application was filed either by CRBCML or by the Official Liquidator (“OL”, hereinafter), notes of arguments have been filed by all parties. Before adverting to the said notes of arguments, one may refer to an order dated 25 November 2010 passed by Sanjiv Khanna, J. (as he then was), sitting singly as Company Judge in this Court in Co. Appln. 176/1998 in the present Co. Pet. 191/1997. The order was passed on an application, similar to the application under consideration, filed by M/s Vikram Commercial Ltd (“Vikram Commercial”, hereinafter), seeking registration of 5050 shares of RIL purchased by it in the regular course of business from the DSE. The order reads thus: “Present: Mr. Ashok Aggarwal, Mr. Salar M. Khan, advocates for the petitioner-applicant + Co.APPLN. No. 176/1998 in C.P.No. 191/1997 *

1. The petitioner- M/s. Vikram Commercial Ltd. had filed this application in 1998 for allowing registration of the 5050 shares of Reliance Industries Ltd. purchased by them in regular course of business from Delhi Stock Exchange.

2. The petitioner has placed on record as Annexure B, the delivery bill for the period 12th April, 1997 to 25th April, 1997 with the pay-out date as 6th May, 1997. Final delivery/payment statement (Annexure C) with the adjustment date 3rd May, 1997 has been placed on record in support of the contention that the bill was paid on 3rd May, 1997.

3. Subsequently, the petitioner applied for transfer/registration of the shares with the share transfer agents but vide letter dated 20th June, 1997 was informed that in view of the order dated 22nd May, 1997 of the Delhi High Court passed in Company Petition NO. 191/1997 appointing the Official Liquidator as the Provisional Liquidator and the letter written by the Reserve Bank of India dated 6th June, 1997, the transfer of the shares cannot be recorded in their register as the shares were originally registered in the name of CRB Capital Markets Ltd.

4. On 1st February, 2005, the court had passed the following Order:- “Mr. Ashok Aggarwal learned Counsel for the applicant has produced share transfer forms as per which shares of Reliance Industries Ltd. (subject matter of the present application) were held by CRB Capital Markets Ltd. and as per that the CRB Capital Markets Ltd. had put the shares for sale on or before 24.1.1997. His submission is that the CRB Capital Markets Ltd. have sold the shares immediately after 24.1.1997 to some other person and received consideration. In order to verify this fact, learned counsel appearing for Ex-Management of CRB Capital Markets Ltd shall be allowed to inspect the records available with the Official Liquidator and inform to the court on the next date of hearing as to on what date CRB Capital Markets Ltd had received the consideration in respect of these shares. A copy of the share transfer forms along with share certificate be supplied to learned counsel for the Official Liquidator as well as counsel for Ex- Management within one week. List again on 27th April, 2005.”

5. It is pursuant to this Order that a second reply has been filed by CRB Capital Markets Ltd. in which the following statement has been made: “It is submitted that Non-applicant took inspection of the records available with Official Liquidator. However, from the records made available to the Non-applicant the exact status of captioned Shares could not be ascertained as CRB Capital Markets Ltd. had not sold any shares of Reliance Industries Ltd. after issue of order dated 09.04.1997 passed by Reserve Bank of India inter-alia prohibiting CRB Capital Markets Ltd. from disposing off and alienating its assets.”

6. The contention of the petitioner is that they had purchased the said shares from the open market and that too prior to the passing of the Order dated 22nd May, 1997 and the letter dated 6th June, 1997 issued by the Reserve Bank of India. The aforesaid facts are clearly proved and established from the documents placed on record by the petitioner (Annexures B and C).

7. Learned counsel for the respondent has submitted that the Reserve Bank of India had issued Order dated 9th April, 1997 prohibiting CRB Capital Markets Ltd from disposing of and alienating their assets. However, the respondent has not stated the date on which they had sold or transferred these shares. In the second reply it is stated that CRB Capital Markets Ltd. had not sold any shares of Reliance Industries Ltd after issue of Order dated 9th April, 1997. In the said eventuality, the shares were sold by CRB Capital Markets Ltd prior to 9th April, 1997 and are therefore not covered by the restraint orders dated 9th April, 1997, 22nd May, 1997 passed by this Court in Company Petition no. 191/1997 or the subsequent letter of the Reserve Bank of India dated 6th June, 1997.

8. Learned counsel for the respondent has submitted that vide order dated 24th January, 2006, a scheme was approved by the single Judge of this Court and an appeal is now pending before a Division Bench of this Court. It is stated that while sanctioning the scheme, the single Judge had observed that all pending applications stand disposed of accordingly. The said order cannot be construed as an order disposing of the present application. It is noted that the application has remained pending last 12 years and was repeatedly listed and adjourned on several dates even after order dated 24th January, 2006 was passed. In fact the case made out by the petitioner-herein is that they had already purchased the said 5050 shares before the interim restrain orders were passed and they are the owners of the said shares and registration of which have been wrongly refused by the Registrar of Companies.

9. Accordingly, it is clarified that the orders passed by this Court on 22nd May, 1997 will not come in the way of the petitioner getting the shares registered in their name provided the said transfer and purchase is otherwise in accordance with law.

10. Application/petition is disposed of.” Mr. Dayan Krishnan, learned Senior Counsel for the applicant, submits that the present case is squarely covered by the aforeextracted order dated 25 November 2010 passed in Co. App. 176/1998.

15. The application has been strongly resisted by Ms. Ruchi Sindhwani, learned counsel for the OL and Mr. Sudhanshu Batra, learned Senior Counsel for CRBCML, instructed by Mr. Bhuvan Gugnani, learned Counsel.

16. The trajectory of the arguments advanced by learned Counsel for the non-applicants was interesting. Much was sought to be made of an application, filed by AGV (Co App 179/1998), in which AGV had sought to contend that the 1500 shares purchased, from it, by the applicant, had, in turn, been purchased by it from CRB Corporation Ltd, on whose behalf they were held in trust by CRB Trustee Limited. Payment against the purchase of these shares had been made by AGV to CRB Corporation Ltd, and not to CRBCML. As such, Mr. Batra took serious exception to shares, against which no money had been received by CRBCML, being sought to be transferred to the applicant by means of the present application. On the attention of Mr. Batra being invited, however, to the fact that the cancelled share certificates relating to the 1500 shares forming subject matter of controversy clearly indicated that the shares were initially held by CRBCML, Mr. Batra was constrained to concede the point. Mr. Batra, therefore, accepted that the 1500 shares forming subject matter of the present controversy were indeed originally held by CRBCML. According to Mr. Batra, however, till the imbroglio regarding payment having been made by AGV to CRB Corporation Ltd is not resolved, transfer of the shares in favour of the applicant cannot be directed.

17. Later, however, on instructions, Mr. Batra relaxed his stand, and submitted that, if the applicant had, in fact, purchased the shares in the open market from AGV, there could be no embargo on the shares being transferred in favour of the applicant. According to Mr. Batra, however, for shares to be purchased from the open market, there must be a contract note indicating the order number, trade number, trade time, quantity, particulars of security provided thereagainst, purchase rates, brokerage, and other such details, along with the bill indicating the kind of security and a Delivery Challan. These details, he submits, are not forthcoming in the present case. In the absence of such details, he submits that no conclusive determination can be made to the effect that the 1500 shares were, in fact, purchased by the applicant in the open market. For these reasons, Mr. Batra submits that the applicant cannot seek the benefit of the order dated 25 November 2010 passed by this Court in Co. App. 176/1998 supra.

18. I may observe, here, that the applicant seriously questioned the locus standi of CRBCML to contest the present application. I, too, queried of Mr. Batra as to how, once he accepted that CRBCML had, in fact, at one time been holding the 1500 shares in issue, and had thereafter sold them, CRBCML could retain any interest in the shares. Though Mr. Batra was not able to provide any satisfactory response to the query, I nonetheless heard him and, therefore, do not intend to dwell further on the issue of locus standi of CRBCML.

19. Supplementing the submissions of Mr. Batra, Ms. Sindhwani, learned Counsel for the OL, placed reliance on the RBI communication dated 9 April 1997 to CRBCML. She further submits that the said communication would squarely apply to the present case, as the Contract Note between AGV and the applicant is dated 25 April 1997, after the said communication had been issued. She has also drawn attention to the Contract Note, which has been placed on record, and which, even while acknowledging the sale of 1500 shares of RIL to the applicant by AGV, does not mention the identity of the person who was initially holding the shares. She has drawn attention to the fact that, in the Bank Statement of AGV, consideration of ₹ 5 lakhs, ₹ 5 lakhs and ₹ 13,52,300/- has been shown to have passed from AGV to CRB Corporation on 22, 23 and 24 April 1997 vide Cheques No. 158099 and 158100 and 158080 for ₹ 3,52,300/-.

20. Ms. Sindhwani has also raised the plea of limitation relying, for the purpose, on Section 446(2)(b)1 of the Companies Act, 1956, which requires a claim to be lodged within 3 years, failing which it is no longer legally enforceable. She has also placed reliance, in this context, on the judgment of the Supreme Court in State of Gujarat v. Kothari & Associates[2] and of this Court in P.T. Gajwani v. A.R.

446. Suits stayed on winding up order. – (2) The Tribunal shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of – ***** whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960.

21. Arguing in rejoinder, Mr. Dayan Krishnan submits that the applicant cannot be concerned with whether AGV had purchased the shares from CRB Corporation or from anyone else. There is no dispute about the fact that the shares were initially held by CRBCML. The sole ground on which Karvy had refused to transfer the shares to the applicant was the embargo placed by this Court and by the RBI on transfer of shares by CRBCML. The matter, he submits, stands squarely covered by the order passed in Co. App. 176/1998 supra which holds, unambiguously, that no embargo on transfer of RIL shares, originally held by CRBCML, would apply where the shares had been transferred by CRBCML prior to 9 April 1997.

22. Insofar as the objection of Mr. Batra regarding the documents which were required to be available and forthcoming the purchase of the shares by the applicant from AGV was, in fact, an open market purchase, Mr. Krishnan submits that the only documents which were required to be shown by him were the contract note and the share transfer certificate. He points out that he has placed on record, (i) the contract note with AGV, (ii) the delivery note by AGV, which indicated that the shares had initially been held by CRBCML, (iii) the 1973 ILR (2) Delhi 752 531-A. Avoidance of voluntary transfer. – Any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration, if made within a period of one year before the presentation of a petition for winding up by the Tribunal or the passing of a resolution for voluntary winding up of the company, shall be void against the liquidator. Share Transfer Form from RIL with respect to the said shares, with the signature of the Director of CRBCML figuring thereon, in which the applicant is shown as the transferee and (iv) Share Certificate dated 16 March 1995 issued by RIL to CRBCML indicating that the said shares had in fact been purchased by CRBCML from RIL, as the Distinctive Numbers of the shares were forthcoming on the Share Certificate. That the shares in controversy were, therefore, RIL shares which were originally held by CRBCML, and that they had been purchased by the applicant for consideration in the open market from AGV, submits Mr. Dayan Krishnan, cannot be doubted or questioned. In that view of the matter, there can be no justification to refuse, to the applicant, relief in the terms granted by this Court to Vikram Commercial by order dated 25 November 2010 passed in Co. App. 176/1998. Analysis

23. To address, first, the preliminary objections raised by Ms. Sindhwani, it is clear, ex facie, that neither of the provisions, on which she places reliance, can have any application to the present case at all. Section 446(2)(b) deals with claims against a Company in liquidation. The applicant has raised no claim against CRBCML. Section 531A deals with transactions which are not bona fide, or in the ordinary course of business. There is no reason to hold that the sale of the subject 1500 shares from CRBCML was otherwise than in the ordinary course of business, or wanting in bona fides. Indeed, this is an aspect which has, if anything, to be pleaded, and no such pleading, either from the OL or from CRBCML, is forthcoming. Nor has Ms. Sidhwani adverted to any material on the basis of which it could so hold. The submission, therefore, is apparently one made in vacuo.

24. On merits, having heard learned Counsel and applied my mind to the material on record, I am of the considered opinion that the applicant has, with no reasonable justification at all, been deprived of its legitimate right to have the subject 1500 shares transferred in its name. I am constrained to record that, for reasons which would probably best be known to the CRB Group of Companies, but which may have some relation to the fact that the value of the said shares might, over time, have spiralled, every possible hurdle has been placed in the way of ensuring that the shares are transferred in the name of the applicant.

25. The nature of the objections raised by CRBCML and the OL, particularly the former, when seen in the light of the documents which are on record, partakes of a sense of irony.

26. The factual position which emerges from a conjoint and juxtaposed reading of the documents is clear and telling. Each of the letters addressed by Karvy to the applicant, clearly sets out the Distinctive Numbers of the RIL equity shares, forming the subject matter of controversy. For ready reference, one may reproduce, by way of example, letter dated 5 October 1999, from Karvy to the applicant: “REF: KCL/RIL/CRB/OBJ/99/0006 DATE: 05-10-1999 MURARI LAL SARAF, 1290, KATRA DHULIA, CHANDNI CHOWK, DELHI-6. Dear Sir/Madam, Sub: Transfer of Equity Shares We wish to bring your kind notice that the below mentioned share that are lodged by you for transfer are being returned herewith under objection with original share certificates and transfer deeds. Please note that there is an order dated 06-06-97 passed by RBI, stating that CRB CAPITAL LTD. is in the process of liquidation and the shares held by CRB CAPITAL LTD. is/are not to be transferred. Kindly quote the above reference no. and date for future correspondence in this matter. Thanking you, Yours faithfully, for KARVY CONSULTANTS LIMITED UNIT – RELIANCE INDUSTRIES LIMITED SRINIVASA VARMA A. Objections Dept. TD NO.

FOLIO NO. CERT.NO. DIST.NO.

SHARES