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PETITIONER: RAHUL SUBODH WINDOORS LIMITED.

       Vs.

RESPONDENT: A.K.  MENON & ANR.

DATE OF JUDGMENT:       06/04/1999

BENCH: G.B.Pattanaik, S.R.Babu

JUDGMENT:

RAJENDRA BABU, J.  :

     The  second respondent was notified under Section 3(2) of  the  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 allotted  and sent   the  necessary  share   certificates  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 the 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.  It was brought out in the proceedings before  the Special Court that by a letter dated November 5, 1991  the  appellant  informed the  second  respondent  that shares of their company worth Rs.  20 lakhs were to be sold. On November 13, 1991 the second respondent sent a cheque for a  sum  of  Rs.   20  lakhs and on  November  15,  1991  the appellant forwarded to the second respondent 15 applications for  purchase of shares on buy-back basis.  A resolution was made  on  November 15, 1991 at the meeting of the  Board  of Directors  of the appellant to allot and issue shares to the investors  and to complete formality and physical  allotment in  due  course.  On November 23, 191 the appellant sent  to the  second respondent application forms so that they may be filled  up  by  its  clients.  The claim put  forth  by  the appellant  is  that they had allotted shares to  the  second respondent  and  that  they  had  forwarded  to  the  second respondent  the  certificates  for 2 lakh shares.   But  the second  respondent  claimed that no such share  certificates were ever forwarded by the appellant to them and their claim is  that  no allotment had been made at all.  It was  argued before  the  Special Court that in the background  that  the

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allotment had been accepted by the Custodian in letter dated March  28,  1994  and,  therefore, the  only  claim  of  the Custodian  can  now be in respect of the share  certificates and  that Rs.  20 lakhs have been paid towards  subscription for  shares,  the Custodian cannot now claim back the  same. The  Special  Court rejected this contention.   The  Special Court  came  to  the  conclusion  that  there  has  been  no allotment  of  shares  at all inasmuch as there  can  be  no allotment  of shares in blank and in the copies of the share certificates produced before the Special Court no names have been  entered.  No application had been filed by the  second respondent  in  terms of Section 41(2) of the Companies  Act agreeing  to become a member of the company and his name  be entered  in the Register of Members.  On examination of  the Register of Members, the Special Court found that there were certain suspicious circumstances which clearly indicated the fact   that  the  second  respondent   had  never  made   an application in writing for allotment of shares.  The Special Court  further  examined  the matter with reference  to  the distinctive  numbers  of the shares which revealed a lot  of suspicion  to the effect that their names in the Register of Members  were made sometime after the letter was sent by the Custodian only to over-come the difficulty of an application being  made by him and long after the second respondent  was notified.   Therefore,  the allotment is purportedly  to  be made in his name without any application in writing and only with  a  view  not  to return the  money  belonging  to  the notified  party.   Further,  there is no intimation  to  the Registrar  of  Companies either for filing a return  of  the statement  stating  the  number, the nominal amount  of  the shares, the names, addresses, occupation of the allotees and the  amounts, if any, paid or due and payable on each share. 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  shares  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 some 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.  Challenging  this  order  several grounds  have  been raised in the appeal but at the time  of hearing  only two contentions are put forth before us by the learned  counsel for the appellant.  In the first place,  he contended  that  the  Special Court had no  jurisdiction  to entertain   the  application  of   respondent  No.   1,  the Custodian,  since  the matter did not relate to any  offence contemplated  under  Section  3  of the  Act.   The  learned counsel  drew  our  attention to the scheme of  the  Act  to impress  upon  us that the Special Court does not  have  any jurisdiction  to entertain an application for declaration to the effect that a sum of Rs.  20 lakhs in question belong to the  second  respondent.  Section 7 of the Act provides  for the  jurisdiction  of  the  Special   Court  in  respect  of transaction  for any offence referred to in Section 3(2)  of the  Act  and bars the jurisdiction of any other court.   If the matter stood thus, the contention put forth on behalf of the  appellant perhaps needs further examination.  Now after the  insertion  of Section 9A with effect from  25  January,

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1994 the Special Court exercises the jurisdiction of a civil court  in  relation to any matter or claim (a) relating  to any  property  standing attached under Section 3(3)  of  the Act,  and  (b)  arising out of  transactions  in  securities entered  into  after  the Ist day of April, 1991 and  on  or before  the  6th  day of June, 1992, in which  a  person  is notified  under Section 3(2) is involved as a party, broker, intermediary  or  in  other  manner.   Sub-section  (3)  of Section  9A bars the jurisdiction of other courts in respect of  these matters.  Therefore, the Special Court is the only court  which  can inquire into and deal with the matters  of this  nature where the transaction covered by Section 9A  or property  standing  attached under Section 3(3) is  involved and,  therefore,  we  think the first  contention  urged  on behalf  of the appellant is plainly misconceived and  stands rejected.   The second contention put forth on behalf of the appellant  is that the shares are granted and, therefore, on the  allotment  of  shares  the money  does  not  belong  to respondent No.  2 but to the appellant.  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  persons;   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 at all and it was sought to be  made only  after the second respondent 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.   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.  Inasmuch as the  appellant has  failed in both these contentions, there is no merit  in the appeal and the same shall stand dismissed.