2003 (3) TMI 601 - HC - Indian Laws

Summary

Issues Involved:
1. Appointment of Court Receiver
2. Ownership and Transfer of Shares
3. Nature of Transaction: Pledge vs. Transfer
4. Bona Fide Purchasers for Value Without Notice
5. Applicability of Depositories Act, 1996
6. Validity of Plaintiff's Suit

Summary:

1. Appointment of Court Receiver:
The plaintiffs sought the appointment of a court receiver for 5,27,650 shares of ETC Networks in the demat accounts of defendants, with the power to sell and dispose of these shares. The relief was specifically sought for one lakh shares held by defendant Nos. 18, 14, and 35 each.

2. Ownership and Transfer of Shares:
The plaintiffs filed the suit for a declaration that 6,50,000 shares of ETC Network Ltd. lying in the demat accounts of defendant Nos. 1 to 21 and 35 belong to them. They also sought an order directing the transfer of these shares to their demat account or, alternatively, a decree for Rs. 1,95,00,000.

3. Nature of Transaction: Pledge vs. Transfer:
The plaintiffs contended that the shares were transferred to defendant No. 1 as security for a loan of Rs. 1,12,50,000, which was never disbursed. They argued that the shares were intended to be pledged, not transferred. However, the court found that the terms of the agreement indicated a transfer rather than a pledge, as the agreement allowed defendant No. 1 to trade, sell, assign, or transfer the shares.

4. Bona Fide Purchasers for Value Without Notice:
The court considered whether defendant Nos. 18, 14, and 35, who purchased shares from defendant No. 1, were bona fide purchasers for value without notice. It was held that these defendants had no reason to suspect any defect in the title of defendant No. 1, who was shown as the beneficial owner in the depository participant's records. Therefore, they were considered bona fide purchasers.

5. Applicability of Depositories Act, 1996:
The court noted that the shares in question were dematerialized and governed by the Depositories Act, 1996. The Act and its regulations provide a self-contained procedure for the creation of pledges, which was not followed by the plaintiffs. The court concluded that the plaintiffs intended to transfer the shares rather than create a pledge.

6. Validity of Plaintiff's Suit:
The court addressed the argument that the plaintiffs' suit was not tenable under Order XX, rule 10 of the Code of Civil Procedure, as the shares were held in a fungible form. However, given the plaintiffs' alternative prayer for a monetary decree, the court did not delve into this issue in detail.

Conclusion:
The notice of motion was dismissed, and the ad interim injunction was extended for two weeks. The court found no merit in the plaintiffs' claims, emphasizing that the shares were transferred, not pledged, and the defendants were bona fide purchasers for value without notice.