2002 (11) TMI 654 - DSC - Companies Law

Issues Involved:
1. Whether the transactions dated April 9, 1992, and April 29, 1992, were separate independent outright transactions or constituted a ready forward transaction.
2. Whether delivery of additional shares on May 13, 1992, constituted pledge, sale, or collateral.
3. Whether such pledge, sale, or collateral was void in view of the judgment of the Supreme Court in Bank of India Finance Ltd.'s case.
4. Whether the suit transaction was between ABFL and Harshad Mehta on a principal-to-principal basis.
5. Other related issues concerning the rights, title, and interest in the shares, authority to pledge or sell the shares, and entitlement to accretions/benefits arising out of the shares.

Detailed Analysis:

(A) Whether the transactions dated April 9, 1992, and April 29, 1992, were separate independent outright transactions or constituted a ready forward transaction (Issue No. 6):
The court concluded that the transactions dated April 9, 1992, and April 29, 1992, constituted a ready forward transaction. The evidence indicated that the transactions were part of a structured funding arrangement where ABFL borrowed Rs. 100 crores from HUDCO and deployed these funds with M/s. V.B. Desai. The purchase and sale were at off-market rates, and the reversal rates were predetermined, satisfying the parameters of a ready forward transaction. The reversal rates for ACC shares and 9% IRFC bonds included an interest component, further substantiating the ready forward nature of the transactions.

(B) Whether delivery of additional shares on May 13, 1992, constituted pledge, sale, or collateral (Issue No. 10):
The court found that the delivery of additional shares on May 13, 1992, constituted a sale and appropriation. The shares were delivered to cover the shortfall arising from the fall in ACC share prices. The evidence, including the books of account and various letters, indicated that the delivery was treated as a sale and appropriation by ABFL. Even if considered a pledge, the special property in the shares passed to ABFL, making the transaction complete and not subject to recall.

(C) Whether such pledge, sale, or collateral was void in view of the judgment of the Supreme Court in Bank of India Finance Ltd.'s case (Issue No. 4):
The court held that the delivery of additional shares on May 13, 1992, constituted an independent collateral completed contract for the underlying ready forward transactions. Even if the forward leg was void, the delivery was not void as per the Supreme Court's judgment in Bank of India Finance Ltd.'s case. The delivery resulted in the transfer of title to ABFL, and the shares could not be recalled.

(D) Whether the suit transaction was between ABFL and Harshad Mehta on a principal-to-principal basis (Issue No. 8):
The court concluded that the real counter-party to the ready forward transaction was Harshad Mehta, not M/s. V.B. Desai. The evidence showed that Harshad Mehta received the consideration and delivered the securities. The reversal rates included brokerage payable by Harshad Mehta, indicating that M/s. V.B. Desai acted as a broker. Harshad Mehta's affidavit also conceded that he acted as a principal in the transaction.

Final Order:
1. It is declared that the delivery of additional shares on May 13, 1992, constituted a completed transfer of property in favor of ABFL, and ABFL is entitled to transfer and sell the shares.
2. Respondent Nos. 3 to 8, 9A, 10, and 11, as well as the Custodian, are directed to take steps to validate and update the transfer forms if required.
3. On realization, appropriate credit would be given to the account of M/s. V.B. Desai as on May 13, 1992, including the value of accretions on the shares.
4. On such transfer and sale, all claims and counter-claims of ABFL and M/s. V.B. Desai shall stand mutually settled and satisfied.
5. Liberty is given to ABFL to move by a separate application for consequential steps, including those against the Registrar of Companies if advised.

The petition stands decreed with no order as to costs.

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