2018 (9) TMI 207 - AT - Companies Law

Suspicious transaction - Held that - Appellant makes out a case that he has not transferred/sold the shares to anyone, therefore, he has right on his shares and also the bonus shares issued and the dividend declared during the past years. He needs to execute indemnity bond in favour of 1st Respondent, in case later on any other claimant comes forward and proves his title. It is admittedly on record that the 3rd respondent was appointed as Registrar & Transfer Agent of 1st Respondent on 1. 3. 2010 and his services were terminated on 11. 6. 2016 by 1st respondent. It is admitted by the 1st respondent that 3rd respondent has done the suspicious transaction and these suspicious transaction has taken place during the period the services of 3rd respondent were being utilised. Therefore, the 1st respondent, who had appointed 3rd respondent as its Registrar and Transfer Agent, is liable for the suspicious transaction which have been committed by 3rd respondent. 1st respondent should protect the shareholder and should take action against the 3rd respondent and its officials for their wrong doings due to which the 1st respondent has been put to loss. 1st respondent cannot escape the responsibility saying that the other person has done misconduct so the shareholder may suffer. Appeal is allowed

Issues Involved:
1. Legitimacy of the transfer of shares.
2. Issuance of duplicate share certificates.
3. Responsibility of the 1st respondent regarding fraudulent activities by the 3rd respondent.
4. Jurisdiction of the Tribunal versus Civil Court.

Detailed Analysis:

Legitimacy of the Transfer of Shares:
The appellant argued that he was the holder of 5000 equity shares of the 1st respondent and had not transferred or sold these shares to anyone. The shares were split and sent to his old address, resulting in their return as undelivered. He discovered that his shares had been fraudulently transferred by the 3rd respondent without his consent. The Tribunal noted that the Securities Transfer Form (SH-4) lacked the appellant's signature and witness details, indicating a fraudulent transfer. The independent auditor Ernst & Young confirmed the suspicious nature of the transfer, as the old transfer form was missing, and the share certificate was handed to an unidentified person. The Tribunal concluded that the transfer was invalid due to these irregularities.

Issuance of Duplicate Share Certificates:
The appellant requested the issuance of duplicate share certificates and the updating of his address. The 1st respondent denied receiving the undelivered share certificate and argued that the matter involved disputed facts and ongoing investigations, making it unsuitable for summary proceedings under Sections 58 and 59 of the Companies Act. The Tribunal, however, found that the appellant had a legitimate claim to the shares and directed the 1st respondent to issue duplicate share certificates upon the appellant providing an indemnity bond.

Responsibility of the 1st Respondent Regarding Fraudulent Activities by the 3rd Respondent:
The 1st respondent admitted that the 3rd respondent, their former Registrar and Transfer Agent, had engaged in fraudulent activities, including the suspicious transfer of the appellant's shares. The Tribunal held that the 1st respondent was responsible for the actions of the 3rd respondent, as they had appointed and utilized their services. The 1st respondent was directed to protect the appellant's interests and take action against the 3rd respondent for their misconduct.

Jurisdiction of the Tribunal versus Civil Court:
The original Tribunal had dismissed the appellant's petition, suggesting that the matter should be addressed in a civil court due to the pending SEBI investigation and the absence of the transferee, Mr. Rajgopal B.V., as a party. However, the appellate Tribunal noted that the appellant had not approached the civil court and that the transfer deed lacked the appellant's signature, differentiating this case from others. The Tribunal concluded that it had the jurisdiction to grant relief and directed the 1st respondent to restore the appellant's name in the member register and issue duplicate share certificates along with any accrued benefits.

Conclusion:
The appeal was allowed, and the impugned order dated 9th June 2017 was set aside. The 1st respondent was directed to restore the appellant's name in the member register, issue duplicate share certificates, and allot bonus shares with accrued dividends, subject to the appellant providing an indemnity bond. No order as to costs was made.

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