Case: Varghese K. Joseph Vs. The Custodian &amp; Others

3. The substantial details and circumstances under which this appeal arises indicate thate appellant herein who is a small investor had purchased 100 equity shares of the respondent No.2 Company namely Reliance Industries Ltd. on 12.6.1989 and payment of the same was made through his share broker - respondent No.4 - Abex and Company which perhaps is not in existence now. However, the payment for purchase of the shares had admittedly been made through Union Bank of India by way of a demand draft. It is the case of the appellant herein that the respondent No.4 despite repeated enquiries never informed the appellant regarding the status of his shares and hence the appellant was absolutely in dark and had no clue about the same. The appellant in the meantime was also living abroad due to his professional obligation and could not ascertain the fate of his shares4. However, when the appellant finally approached respondent No.2 - Reliance Industries Ltd. seeking dividend and other consequential benefits like issue of rights and bonus on shares, it was informed to the appellant by the respondent No.2 that the shares of the appellant on which dividend was claimed, were found to be tainted and hence it was unable to consider the request of the appellant for payment of dividends. The appellant, thereafter also learnt that there had been mutual correspondence between the share broker companies i.e. respondent No.3 Karvy Consultants Ltd. and respondent No.4 - Abex and Company for taking the accounts of the shares in question vide Annexure-P1 in order to complete certain procedural formalities. But as per the case of the appellant, neither the respondent No.3 nor respondent No.4 cared to inform the appellant about the said development through which he had purchased the shares. The appellant has annexed the copy of the letter dated 12.7.1995 vide annexure P-1 which was written by the respondent No.4 - Abex and Company to Respondent No.3 - Karvy Consultants Ltd5. Since the appellant had been informed by the respondent No.2 - Reliance Industries Ltd. that the dividends could not be paid to him as the shares were held to be tainted, the appellant also tried to ascertain the status of his shares purchased by him through respondent Nos. 3 and 4. However, it is alleged by the respondent No.3 -M/s. Karvy Consultants Ltd. that it had informed the appellant to submit appropriate application seeking certification of the tainted shares as the equity shares in question stood in the name of M/s. Fair Growth Financial Service Ltd. which subsequently became the subject matter of attachment as per the order of the Government of India since it was found to be involved in some scam and hence the shares issued by this company required certification by the Custodian as per order of the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992. But the appellants case is that he never received the said communication nor the said letter indicated anything about the cut off date for making application for certification of the tainted shares. Annexure P-2 is the copy of the letter dated 5.1.2001 which is allegedly written by the respondent No. 3- M/s. Karvy Consultants Ltd. to the appellant directing him to file the application seeking certification of shares6. The appellant in the meantime had also made further enquiries in regard to the certification of the tainted shares and also for consequential benefits which accrued on the shares in question. He then learnt that he would have to file an application before the Special Court seeking direction to the Custodian for certification of shares as it was reiterated that the shares in question stood in the name of M/s. Fair Growth Financial Services Ltd. - respondent No.5 which were the subject-matter of attachment as per the Government of India order since they were found to be tainted. A clarification also is alleged to have been issued by the respondent No.3 -Karvy Consultants Ltd. that in order to do justice to the bonafide investors, the Special Court in its orders dated 27.7.1992 and 31.7.1992 bearing Misc. Application Nos. 1, 2 and 3 of 1992 laid down a procedure for certification of the tainted shares through the representative of the Custodian. It was informed that the said Honble Court had fixed the last date for submission of such application for certification which was 16.8.1995 and the Special Court had further directed that whoever fails to submit application for certification on or before 16.8.1995, the party would have to approach the Special Court directly for certification. Subsequently, the cut-off date appears to have been extended to 27.06.2005 as per order of the Special Court on application having been made by the custodian. Hence, it claims to have requested the appellant - Mr. Joseph that he should file an application/petition mentioning therein the reliefs/directions intended to be sought from the Honble Special Court (Torts) through the advocate along with the documents, papers at the address of the Special Court which was stated therein. It was further requested to the appellant to forward the relevant order from the Special Court along with original share certificates and transfer deeds to enable it to do the needful. But the appellants case is that he never received the said communication etc7. As per the appellants version the original shares and transfer deeds had been delivered to the respondent No.4 -Abex and Company - the share broker company through whom the appellant had purchased the shares as under the rules, the share certificates were not issued from the company to the appellant but the same was lying in the hands of respondent No.3 i.e. Karvy Consultants Ltd. through respondent No.4 and so the appellant could not produce the share certificates. However, the respondent No.4 -Abex and Company had assured the appellant that it would return the share along with the Clearance Certificate from the Stock Exchange but the respondent No. 3 i.e. Karvy Consultants Ltd. was unable to process the share through respondent No.6 - Madras Stock Exchange as they were tainted. The appellant, therefore, stated that he is a bonafide purchaser and the owner of 100 tainted shares of respondent No. 2 and the said shares were required to be transferred in the name of the appellant along with all the accrual till dates after certification. The appellant as already stated also learnt that the tainted shares required certification through respondent No.1 - the Custodian and for this purpose he would be required to seek permission from the Special Court under the Special Courts Act of 19928. In view of the aforesaid position, the appellant filed an application before the Special Court under the provisions of Special Courts Act of 1992 wherein he prayed for certification of the shares by the respondent No.1 - Custodian and its release and payment of accruals but as per the letter from the office of the Special Court it was intimated that the last date to submit application for certification was 27.6.2005 and hence it could not be entertained9. The appellant, therefore, filed an application before the Special Court on 27.08.2005 stating that he was not aware of any cut off date regarding the filing of the application for certification of shares by the Custodian and was also not aware of the procedure or the last date of filing any application for certification until he received the letter on 22.8.2005. Hence, the appellant/applicant was not able to file any application for certification of the tainted shares within the time fixed by the Special Court10. The learned Judge of the Special Court however, was pleased to dismiss the application on 28.11.2005 stating that the plea of the applicant that he was not aware of the procedure laid down by the Special Court for certification of the tainted securities etc. was devoid of merit and the application seeking permission for certification which was received on 27.8.2005 i.e. after the cut off date which was subsequently extended to 27.6.2005 was not found fit to be entertained. Hence, the application was dismissed by the Special Court against which this appeal has been filed by the appellant under Section 10 of the Special Courts Act of 1992 as already indicated hereinbefore.

Reasoning:
, the appellant under the facts and existing circumstances of the case where he ended up buying tainted shares for no fault on his part but had to seek its certification from the Custodian under compelling circumstance which was not his creation and also had no control, could not have been denied his due on the ground of delay in filing the application for certification specially when the appellant had sought certification of his shares only after two months of thefor reasons beyond his control which cut off date has no statutory effect or legal force. Thesaddled with the tainted shares for no fault on his part through respondent Nos. 4, 5 and 6 on which he had no control or any role to play and on the top of it, when he sought a remedy of certification for claiming dividends, he had to suffer an order by which his application was rejected on the ground that he had not moved an application within the cut off date which had no statutory force as the same had been fixed at the instance of the Custodian seeking approval from the Special Court