2018 (8) TMI 836 - SC - Companies Law

Transfer of shares - fraudulent activity of registrar of company - forging the appellant s signature for issue of duplicate share certificates in 2012 - 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. Since this was not done, despite repeated reminders for the 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. Held that - the Appellate Tribunal in relegating the appellant to a further proceeding was not correct. We, therefore, setaside the Appellate Tribunal s order and reinstate that of the Tribunal dated 20.03.2017. - Company directed 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.

Summary

Issues:
Fraudulent transfer of shares, failure to follow proper procedures in issuance of duplicate shares, jurisdiction of the National Company Law Tribunal (NCLT), reinstatement of appellant on share register, rectification of demat records.

Fraudulent Transfer of Shares:
The case involved a fraudulent transfer of 903 equity shares from the appellant to an impersonator who subsequently transferred them to a third party using forged signatures. The National Company Law Tribunal (NCLT) acknowledged the fraud and granted relief to the appellant, emphasizing that the appellant should not be deprived of her assets due to criminal investigations. The NCLT held that the company and its agents were liable for the fraudulent acts, directing the company to issue revalidated share certificates to the appellant.

Failure to Follow Proper Procedures in Issuance of Duplicate Shares:
It was noted that the standard procedure for issuance of duplicate shares was not followed by the company, as required by Circular No. 1 dated 09.05.2001. The NCLT observed that procedural aspects and due care were not adhered to, allowing the fraud to go undetected. The Appellate Tribunal initially set aside the NCLT's order, citing pending criminal complaints and SEBI investigations, but the Supreme Court reinstated the NCLT's order, emphasizing the failure to follow proper procedures in issuing duplicate shares.

Jurisdiction of the National Company Law Tribunal (NCLT):
The NCLT's jurisdiction to adjudicate the case was challenged by the company, but the NCLT rejected the objection, stating that the case could be adjudicated by the Tribunal. The NCLT emphasized that the appellant should not have to resort to a civil court to prove her title, as the fraud was perpetrated by the company's employees or agents. The Supreme Court upheld the NCLT's decision, affirming the Tribunal's authority to address the matter.

Reinstatement of Appellant on Share Register:
The Appellate Tribunal initially set aside the NCLT's order, relegating the appellant to file a civil suit. However, the Supreme Court disagreed with this decision, reinstating the NCLT's order and directing the company to rectify its register to restore the appellant to her original position. The Court emphasized that even if the third party was on the register, the transfer was declared void in law, necessitating the restoration of the appellant's position.

Rectification of Demat Records:
The Supreme Court directed the company to rectify its register concerning physical share certificates and instructed the concerned depository to rectify the demat records in accordance with the Court's order. The Court allowed the appeals in favor of the appellant, ensuring the rectification of records to restore the appellant's rightful ownership of the shares.