Case: Rahul Subodh Windoors Ltd Vs. A.K.Menon

1. The second respondent was notified under Section 3(2) ofthe Special court (Trial of Offences Relating To Transactions In Securities) Act, 1992 [hereinafter referred to as `the Act] as a person involved in offences relating to transactions in securities during the period mentioned therein. Respondent No. 1, who is the Custodian appointed under Section 3(1) of the Act, on inquiry with the appellant, came to know that they had received a cheque for a sum of Rs. 20 lakhs from the second respondent for purchase of certain shares, without, however, mentioning the names of the ten shareholders to whom the shares were to be issued. The appellant claimed that they had alloted and sent the necessary share certificate to the second respondent and they also sent photocopies of the share certificates thereof to the Custodian. The Custodian, by letter dated March 28, 1994, informed the appellant that the share certificates would be property of the second respondent and would stand attached and there should be no transfer in respect of these shares. The Custodian on September 27, 1994 filed an application before the Special Court under the Act for return of a sum of Rs. 20 lakhs along with interest.Thus on the basis of these circumstances and certain other attendant circumstances, the Special Court came to the conclusion that there was no allotment of shares and it is not now open to the appellant to make such an allotment of shares and, therefore, it directed the repayment of the sum of Rs. 20 lakhs with interest. Alternatively, the Special Court held that the sale/purchase of the share was on a `buy-back basis and it was only an arrangement for financing and even on that basis the price must be the original price plus come amount for interest at a reasonable rate and that must be repaid. In conclusion, the Special Court directed the appellant to pay the Custodian for and on behalf of the second respondent a sum of Rs. 20 lakhs together with interest thereon @18% per annum from November 13, 1991 till payment.

Court's reasoning:
In the narration of facts made earlier while referring to the proceedings in the Special Court out of which this appeal arises we have stated the various circumstances taken note of by the Special Court in not accepting that there had been any allotment of shares. A few of these circumstances are firstly, there can be no allotment of shares to unknown person; secondly, allotment can be made to a person who becomes a member of the company when an application is made to that effect, and thirdly, no application was made to the company by the second respondent in that regard was forthcoming. Cloud of doubts was cast upon the entries in the Register of Members and the distinctive numbers of the shares and, therefore, the finding of fact recorded by the Special Court that there had been no allotment was notified under the Act to avoid payment of money of a sum of Rs. 20 lakhs cannot be seriously disputed. We find no good reason to interfere with the said finding and the second contention urged also stands rejected.6. The Special Court was also justified in noticing that the transaction between the parties was really a financial arrangement with the `buy-back agreement and even on that basis a sum of Rs. 20 lakhs with interest can be ordered to the paid to the Custodian. We cannot take any exception to this view either.