REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL Nos. 3034-3036 OF 2005

Maghendra Pal Tyagi                                    .....        Appellant

Versus

Jayant Davar & Ors.                           ..... Respondents  

J U D G M E N T

Lokeshwar Singh Panta, J.

1. These  appeals  are  directed  against  the  judgment  and

order dated 10.10.2003 in Misc. Application No.186 of 2000

(impugned  order-1);  order  dated  14.07.2004  in  Misc.

Application No.178 of 2004 in M. A. No. 186/2000 (impugned

order-2)  and  order  dated  18.08.2004  in  Misc.  Application

No.263  of  2004  in  M.  A.  No.186/2000  (impugned  order-3)

passed  by the  Special  Court  constituted  under  The  Special

Courts  (Trial  of  Offences  Relating  to  Transactions  in

Securities) Act, 1992 [hereinafter referred to as “the Act”] at

Bombay.

2. The short facts leading to the present proceedings are as

under:-

The  appellant  herein  held  200  shares  of  Hero  Honda

Company  -  fourth  respondent-company  herein.   In  and

around September 2003, the appellant desired to dispose of

the  said  200  shares,  but  he  allegedly  lost  the  same.   On

21.09.1993, the appellant got a police report registered in the

Sihani  Gate  Police  Station,  Ghaziabad.   On  or  about

22.09.1993,  the  appellant  approached  and  requested  the

fourth respondent-company for issue of duplicate Certificates

in lieu of his lost shares along with all supporting documents,

indemnity bonds and affidavits, etc.

3. On 05.01.1994,  the fourth respondent-company got an

Advertisement/Public Notice published in Newspapers calling

upon to file objections, if any, against issue of duplicate Share

Certificates to the appellant and also striking a note of caution

to the public at large not to deal with the shares so specified

in the advertisement.  Having not received any objection from

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any  one,  the  fourth  respondent-company  on  03.02.1994

issued  duplicate  Share  Certificates  to  the  appellant.   The

appellant transferred his shares in favour of Jayant Davar -

the first respondent herein, which were registered in his name

by the fourth respondent-company on 18.10.1994.  The first

respondent had been offered 50 Bonus Shares by the fourth

respondent-company,  which  offer  was  profitably  availed  by

him.  The first respondent sold/transferred 200 shares which

he got from the appellant and 50 Bonus Shares consequently

acquired by him, but the fourth respondent-company did not

register the said transfer.  This was done on the asking of the

CBI,  who  was  investigating  the  Share  Transfer  Scam,  and

advised the first respondent and the transferee to approach

the  Custodian  –  second  respondent  herein.   The  fourth

respondent-company asked the appellant to enforce indemnity

bond,  but  the  appellant  did  not  agree  as  the  fourth

respondent-company  had  not  suffered  any  loss,  etc.  as  a

result of the transaction.    

4. The case of the first respondent before the Special Court

was  that  he  purchased  800  shares  of  fourth  respondent-

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company through its broker M/s. Jamnadas Morarjee & Co.

during the months of  July-August,  1994 and thereafter  the

said shares were sent for transfer to the Registrar and Share

Transfer  Agent of  respondent No. 3,  i.e.  MCS Limited.   The

shares  were  finally  transferred  in his name on the basis  of

valid instruments of transfer and, accordingly, a ledger folio

No. 141982 has been allotted to him.  The second respondent

filed  Miscellaneous  Application  No.  186/2000  before  the

Special Court claiming 200 shares which were transferred in

his name from the appellant and 50 bonus shares in the ratio

of 1:4 as issued by third respondent against those 200 shares.

The first respondent stated before the Special Court that he

had sold 250 shares in the open market  through his share

broker  M/s.  TRC  Securities  Pvt.  Ltd.  in  the  month  of

May/June, 1997.  Upon lodgment of the said 250 shares with

MCS Limited, they, vide their letter dated 26.06.1997 refused

to transfer/register the shares in the name of the lodger i.e.

Morgan Stanley Assets Management Inc., A/c Morgan Stanley

Institutional  Fund  Inc.  Emerging  Markets  Portfolio.

Subsequently,  the  250  shares  were  returned  to  first

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respondent  as  ‘Bad  Delivery’  under  two  different  covering

letters dated 26.06.1997 and 10.07.1998 respectively.  MCS

Limited  received  a  letter  bearing  No.  5696/Cus/Mob/UR-

CBI/96 (533B) dated 29.02.1996 from the second respondent-

Custodian regarding stop transfer of the shares in favour of

any  person  without  permission of  the  Custodian.  The  MCS

Limited also enclosed copy of transfer deeds, share certificates

and Custodian’s letter dated 29th February, 1996 along with

their letter to the second respondent who on going through the

same, came to know that 117335 shares of fourth respondent-

company belonged to the Notified Persons of the group of Late

Harshad S. Mehta which were seized by CBI and remained in

their custody.  The letter also revealed that Late Harshad S.

Mehta and his group were notified by the Custodian on 8.6.92

under the provisions of the Act and all properties belonging to

them  stood  attached  simultaneously  with  the  issue  of  the

notification and the fourth respondent-company was informed

not  to  deal  with  those  shares  in  any  manner  including

transfer,  pledge,  issue  of  duplicate  etc.  and  all  corporate

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benefits admissible on these shares may be held in abeyance

till the orders passed by the learned Special Judge.   

5. In  view  of  the  above  stated  circumstances,  the  first

respondent  requested  the  fourth  respondent-company  to

transfer the shares in the name of the buyer who purchased

the  same  in  the  open  market.   The  fourth  respondent–

company vide their letter dated 8th October, 1997 informed the

first respondent that one Mr. Mahendra Pal Tyagi – appellant

herein was holding the said 200 shares under Ledger Folio No.

128027 bearing Share Certificate Nos. 58193, 46706, 179855

which he claimed having been lost and requested the fourth

respondent-company to issue duplicate shares in lieu of the

aforesaid original  lost  share certificates.   The appellant also

submitted the Police Report,  indemnity bond, affidavit along

with the request letter to the fourth respondent-Company who

issued  duplicate  shares  to  the  appellant  under  Share

Certificate  Nos.  191549-191552.   The  duplicate  shares

subsequently were lodged by the first respondent for transfer

in his name and, accordingly, the fourth respondent-company

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transferred the said shares on 18th October, 1994 in the name

of the first respondent.

6. The  fourth  respondent-company  thereafter  received  a

letter dated 29th February, 1996 from the office of the second

respondent–Custodian  whereby  the  Custodian  asked  the

fourth  respondent-company  to  “stop  transfer”  of  certain

shares including the shares which are the subject matter of

these proceedings and also held in abeyance all the benefits

accruing on those shares as the said shares were seized by the

CBI at the time of raid laid on the places of Late Harshad S.

Mehta.  The letter of 8th October, 1997 revealed that the list

furnished  by  the  second  respondent-Custodian  includes

original shares of the appellant which he allegedly lost.  The

fourth respondent-company, therefore marked “stop transfer”

against  the  duplicate  shares  which  were  transferred  in  the

name of the first respondent and advised the first respondent

to  approach  the  stock  exchange  through  whom  the  first

respondent  purchased  those  shares  so  that  through proper

channel, the introducing broker as well as the share holder,

i.e. the appellant could be asked to replace the said shares

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with  good  shares.   The  first  respondent  admitted  that  he

purchased  200  shares  from the  open  market  through their

share broker and paid the consultation thereof and thereafter

the  shares  were  also  registered  in  his  name  by  the  fourth

respondent-company as per the provisions of the Companies

Act,  1956  and  he  had  absolutely  no  knowledge  about  the

duplicate shares being issued in the name of the appellant by

the fourth respondent-company.  He claimed that in the facts

and  circumstances  narrated  in  the  application,  first

respondent is the real and only owner of these shares and,

accordingly, all  corporate benefits accrued thereon since the

date of registration of the 250 shares in his name, be paid to

him in the interest  of justice.   By reasons of the impugned

order  dated  10.10.2003,  the  learned  Special  Judge  allowed

Misc. Application 186 of 2000 filed by the first respondent.  It

was directed:-  

“This application relates to 250 shares of respondent  no.3  company.   It  appears that  the  respondent  no.4  who  was holding these shares had sold the shares on  the  Stock  Exchange  which  were purchased by the notified party.  Taking advantage  of  the  fact  that  the  notified

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party  because  of  the  notification  could not apply for transfer of the shares, the respondent  no.4  applied  for  duplicate shares  by  making  a  misrepresentation that he has lost the shares and received from the Company the duplicate shares. Those  duplicate  shares  were  again  sold and  they  were  now  purchased  by  the applicant.   The  principal  prayer  in  the application is for lifting of attachment on these  250  shares.   It  is  obvious  that these  250  duplicate  shares  have  been issued  by  the  Company  because  of misrepresentation  made  by  the respondent no.4.  By an order dated 16th July,  2003,  the  respondent  no.4  was directed  to  deposit  in  this  Court  an amount  of  Rs.6,00,000/-.  The respondent  no.4  has  not  obeyed  this order.   In  the  affidavit  filed  by  the respondent  no.4,  the  explanation  that has  been  given  by  him  is  incapable  of being accepted.  There are no documents produced in support of that explanation. It is thus clear that there is no question of  attachment  of  250  shares  of  the respondent  no.3  company  being  lifted. The  relief  to  which the  applicant  would be  entitled  is  to  recover  from  the respondent no.4 the value of the shares. It  is clear from the report  submitted by the  Custodian,  that  these  shares  were purchased by the Applicant in the month of  June  1994  and  payment  for  it  was made by cheque dated 6th July 1994 and the  amount  was  Rs.2,94,400/-.   The applicant therefore would be entitled to a decree  against  the  respondent  no.4  in

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this amount.  The application therefore is disposed off in the following terms.

The respondent no.4 is directed to pay to the  applicant  an  amount  of Rs.2,92,400/- with interest at the rate of 18%  p.a.  from  6th July  1994  till realization.  Application is disposed off.”

7. Being  aggrieved,  the  appellant  filed  Review  Application

being  Misc.  Application  No.178  of  2004  under  clause  (f)  of

sub-section (5)  of  Section 9-A of the Act  before  the learned

Special Judge.  The said application came to be rejected on

14.07.2004 vide order, which reads as under:-

“Called for hearing and Final Disposal

None for the applicant

Mr.  Modi  i/b  Yogesh  Thakur  for Respondent No.1

Mr. J. Chandran i/b M/s P.M. & Mithi & Co. for the Custodian/Respondent No.2

Mr.  V.M.  Singh  i/b  Arun  Mehta  for Respondent No.4

                      Coram D.K. Deshmukh, J.                        Judge, Special Court                        Dated 14th July, 2004

P.C.

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Matter called twice.  None present for the applicant.  Application rejected.”

8. Again, the appellant preferred Misc. Application No.263

of  2004  for  restoration  of  the  Review  Petition,  which  was

dismissed  and  the  following  order  came  to  be  passed  on

18.08.2004:-  

“Even  assuming that  due  to  mistake  of the  lawyer,  lawyer  could  not  remain present and therefore, the review petition was  rejected,  after  having  heard  the learned  counsel  appearing  for  the Applicant on the review application, I find that  there  is  no  reason  to  review  the order  dated  10th October,  2003. Applicant was Respondent No.4 in Misc. Application  No.186  of  2000.   By  order dated 16th July, 2003, he was directed to deposit  an  amount  of  Rs.6  lakh  in  the court.   He  did  not  obey  that  order. Therefore, the Applicant is not entitled to any indulgence from this court.

Misc. Application disposed of.”

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9. Hence, the appellant has assailed the above-said three

orders  before  this  Court  in  these  appeals  preferred  under

Section 10 of the Act.

10. During the pendency of  the appeals  in this Court,  the

legal representatives of late Harshad Mehta are substituted as

respondents Nos. 3(i), (ii) and (iii).   

11. Mr. Abhishek Vikas Singh, learned counsel appearing on

behalf of the appellant, in assailing the orders of the learned

Special Judge,  inter alia, contended that the learned Special

Judge did not appreciate the fact that the original shares were

not valid and legal and had come to the hands of the notified

person  (deceased  Harshad  Mehta)  in  illegal  and  wrongful

manner and were never transferred and registered in his name

in accordance with law and as such, the appellant could not

have been penalized for the acts and deeds of a third person,

who  had  acquired  the  shares  in  illegal  and  clandestine

manner.  He submitted that the action of the appellant being

bona fide and reasonable,   he had faced loss  at  last  stage,

even when the duplicate shares were already stood transferred

in his name in due course after following all legal procedures

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and  due  application  of  law.    The  learned  counsel  then

contended  that  the  orders  of  the  learned  Special  Judge

impugned  in  these  appeals  have  resulted  in  manifest  error

and miscarriage of justice to the appellant, which deserve to

be set aside.

12. Mr. Rohit Aggarwal, learned counsel appearing on behalf

of  the first  respondent,  on the other  hand,  would  inter alia

submit that the learned Special Judge passed an order based

upon  the  material  on  record  which  would  reveal  that  the

appellant had committed a fraud of selling 200 shares on the

Stock  Exchange  and  thereafter  applying  to  the  fourth

respondent-company for duplicate shares on the plea that the

said  shares  had  been  stolen.   He  also  submitted  that  the

learned Special  Judge had not burdened the appellant with

payment for the entire amount of 800 shares as alleged, but in

fact  has  directed  payment  of  Rs.2,92,400/-  with  interest

thereon, which is the value of 250 shares only.

13. Mr. Subramanium Prasad, learned counsel appearing on

behalf  of  second respondent-Custodian,  would  contend that

the appellant had sold the shares in question to late Harshad

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Mehta,  a  notified  person under  Section 3(2)  of  the Act  and

deceased Harshad Mehta could not apply for transfer of those

shares, the appellant, on a misrepresentation that he had lost

the  shares,  applied  for  and  got  duplicate  shares  from  the

fourth  respondent-company,  which  were  also  sold  by  the

appellant  to  first  respondent.   Learned  counsel  for  the

respondents, in nutshell, supported the orders of the learned

Special  Judge  which,  according  to  them,  cannot  be  found

faulty or invalid on any grounds whatsoever as alleged by the

appellant.

14. We have given our thoughtful and anxious consideration

to the respective  contentions of  the learned counsel  for  the

parties and perused the material on record.  The contentions

of  the  learned  counsel  for  the  appellant  at  the  first  blush

sound attractive, yet we are afraid to accept the same.     

15. The  undisputed  facts  are  that  the  first  respondent

purchased  800  shares  including  200  shares  (the  subject

matter  of  the proceedings)  of  fourth respondent-company in

open market in the months of July and August, 1994 through

its share broker M/s. Jamnadas Morarjee & Co., C-4 Defence

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Colony,  New  Delhi-24.   The  fourth  respondent-company

allotted 50 bonus shares to him against the said 200 shares in

the ratio of 1:4.  In all, the dispute before the learned Special

Judge was limited to 250 shares.  Late Harshad S. Mehta, who

was a party – third respondent herein, is represented through

his  legal  representatives  Nos.  3(i),  (ii)  and  (iii)  respectively.

Indisputably, deceased Harshad Mehta was a notified person

under sub-Section (2) of Section 3 of the Act and the appellant

transacted  the  said  shares  with  the  deceased  Harshad  S.

Mehta  entered  after  the  first  day  of  April,  1991  and on  or

before 1st June, 1992, the stipulated period covered under the

Act.   Claim  submitted  by  the  first  respondent  before  the

learned Special Judge would arise out of the transaction of the

said  250  shares  between  Late  Harshad  S.  Mehta  and  the

appellant during the aforesaid period.  The entire properties

belonging to the notified party on the day of notification would

stand  attached  in  terms  of  Section  3(2)  of  the  Act.   The

appellant  knowing  fully  well  that  he  has  already  sold  the

shares  to  late  Hashad  S.  Mehta,  he  made  a  false

representation to the fourth respondent-company that as the

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appellant had lost original shares, therefore, duplicate shares

were  allotted  to  him  which  stood  in  his  name  since  late

Harshad S. Mehta had not applied for change of the name.

The whole exercise was done by the appellant on the basis of

his mis-representation.  This Court in L.S. Synthetics Ltd. v.

Fairgrowth Financial Services Limited & Anr.  (2004) 11

SCC 456, held that Section 3(3) of the Act should be literally

construed and all properties belonging to the notified party on

the date of notification would stand attached.

16. In terms of the provisions of sub-section (3) of Section 3

of the Act,  the properties belonging to deceased Harshad S.

Mehta  being  a  notified  person  stood  attached.   Such

attachment  being  automatic,  no  finding  was required  to  be

arrived at that the same had been acquired during the notified

period.  In  Tejkumar  Balakrishna  Ruia  v.  A.K.  Menon

(1997)  9  SCC 123,  this  Court  held  that  the  terms  of  sub-

section (3) Section 3 are clear that the property that belongs to

a  notified  person  stands  attached  simultaneously  with  the

issue of notification that makes him a notified party.  It is said

that the words ‘on or from the date of notification’ indicate the

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point  of  time  at  which  the  attachment  takes  effect;  this  is

reiterated by the words ‘shall stand attached simultaneously

with  the  issue  of  the  notification’.   Further  that  this  also

indicates that no special notification or order in regard to the

attachment is necessary.   In the latest judgment of this Court

in Ashwin S. Mehta & Ors. v. Union of India & Ors. (2006)

2 SCC 385, this Court reiterated that property, be it shares,

dividends  and  bonus  and  rights  shares  that  belongs  to  a

notified person would also be attached property.

17. In this view of the matter, learned Judge of the Special

Court has rightly concluded that 200 duplicate shares were

obtained by the appellant by misrepresentation.  The said 200

shares  plus  50 Bonus  shares  were  attached  by  the  CBI  in

proceedings  initiated  against  deceased  Harshad  S.  Mehta,

therefore,  the  attached  shares  of  the  fourth  respondent-

company could not be transferred to any party.  The record of

second  respondent-Custodian  would  reveal  that  250  shares

were purchased by the appellant in the month of June, 1994

and payment of Rs.2,92,400/- was made by cheque dated 6th

July,  1994.   In  these  circumstances,  the  learned  Special

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Judge directed the appellant to pay to the first respondent an

amount of Rs. 2,92,400/- with interest at the rate of 18% per

annum  from 6th July, 1994 till the date of realization.  

18. In the backdrop of the facts and circumstances and in

the light of the provisions of law, in our view, the orders of the

learned  Special  Judge  impugned  in  these  appeals  do  not

suffer from any infirmity or illegality warranting interference in

exercise of appellate power.

19. For the reasons aforementioned, we do not find any merit

in these appeals which are dismissed, accordingly.  Parties are

left to bear their own costs.  

........................................J.                                                 (C. K. Thakker)

........................................J.                                                 (Lokeshwar Singh Panta)

New Delhi, June 05, 2008.

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