1999 (4) TMI 491 - SC - Companies Law

Whether there was no allotment of shares and it is not now open to the appellant to make such an allotment of shares and, therefore, it directed the repayment of the sum of ₹ 20 lakhs with interest? Held that - Appeal dismissed. The Special Court is the only Court which can inquire into and deal with the matters of this nature where the transaction covered by section 9A or property standing attached under section 3(3) is involved and, therefore, the first contention urged on behalf of the appellant that the Special Court had no jurisdiction to entertain the application of respondent No. 1 is plainly misconceived and stands rejected. Cloud of doubts was cast upon the entries in the register of members and the distinctive numbers of the shares and, therefore, the finding of fact recorded by the Special Court that there had been no allotment at all and it was sought to be made only after the second respondent was notified under the Act to avoid payment of money of a sum of ₹ 20 lakhs cannot be seriously disputed. Also no good reason to interfere with the said finding and the second contention urged also stands rejected. The Special Court was also justified in noticing that the transaction between the parties was really a financial arrangement with the buy- back agreement and even on that basis a sum of ₹ 20 lakhs with interest can be ordered to be paid to the Custodian.

Summary

Issues:
1. Jurisdiction of the Special Court under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992.
2. Allotment of shares and ownership of funds amounting to Rs. 20 lakhs.

Issue 1: Jurisdiction of the Special Court
The judgment discusses the jurisdiction of the Special Court under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992. Initially, the appellant contended that the Special Court had no jurisdiction to entertain the application by the Custodian as the matter did not relate to any offence under the Act. However, with the insertion of section 9A, the Special Court exercises jurisdiction in matters related to property standing attached under section 3(3) of the Act and transactions in securities involving notified parties. The Court found the appellant's contention misconceived and rejected it, affirming the Special Court's jurisdiction in the present case.

Issue 2: Allotment of shares and ownership of funds
The judgment delves into the dispute regarding the allotment of shares and ownership of funds amounting to Rs. 20 lakhs. The Special Court found that there was no valid allotment of shares to the second respondent, as no application was made by them to become a member of the company. Suspicious circumstances surrounding the share allotment process, including blank allotments and delayed entries in the register of members, led the Special Court to conclude that no genuine allotment had taken place. Consequently, the Court directed the appellant to repay the sum of Rs. 20 lakhs with interest to the Custodian on behalf of the second respondent. The appellant's argument that the shares were granted and the money belonged to them was dismissed, as the Special Court's findings on the lack of proper share allotment were upheld. The Court also noted that the transaction between the parties was essentially a financial arrangement with a "buy-back agreement," justifying the repayment of the funds to the Custodian.

In conclusion, the appeal challenging the Special Court's order was dismissed, as the appellant failed to establish merit in their contentions regarding jurisdiction and share allotment.