Saga of Harshad S. Mehta | Shares of a person held by ‘Custodian’ on a mere basis of a communication by Harshad Mehta: Widow of deceased person reaches Court | Read detailed report

Special Court, Bombay High Court: The Special Court (Trial of Offences Relating to Transfer of Securities Act, 1992) of A.K. Menon, J., rejected the claim of late Harshad S. Mehta over the shares forming the subject matter of the present case and allowed the widow (applicant) of one Radhey Shyam Aggarwal to approach the company concerned to satisfy that she is entitled to the transmission of such shares. The Court however stopped short of allowing the applicant’s prayer for certification of shares.

Background

Instant application sought certification of shares filed by the applicant, resident of Kolkata.

As originally filed, respondent 1 is the Custodian, Respondent 2 is Tata Global Beverages Ltd., Respondent 3 is a Share broker, Respondent 4 was intended to be legal heirs of late Harshad S. Mehta.

The application filed was not correctly affirmed but merely signed by the applicant and therefore he was permitted to file a supplementary application. In April, 2021 a duly completed application was lodged.  A minor change was done with regard to the company whose shares the applicant claimed was now respondent 1, Jyoti Mehta legal heir of Harshad S Mehta was respondent 3 and the broker respondent 4.

Applicant impleaded her late husband as respondent 5 and the Calcutta Stock Exchange as respondent 6.

Applicant’s Case

The applicant stated that her late husband had purchased 500 shares of Tata Global Beverages Ltd. – respondent 2 from respondent 4 – a broker for consideration of Rs 26, 515. She relied upon photocopies of original share certificates, contract notes, bill/receipt issued by the broker and proof of payment. Further, in 1989, she claimed to have received 200 bonus shares of the company. Accordingly, the shareholding would have increased to 700 shares.

After her husband passed away in 1996, addressed a letter to the company requesting transmission of the shares held in the name of her husband to her name.

Registrar and Transfer Agents of the company informed the respondent that the shares in question formed part of 1,22,881 shares which a Harshad Mehta entity had apparently purchased before 8th June 1992 and accordingly the company informed the applicant that she should approach the office of Custodian.

Till 2010 applicant did nothing with respect to the above. In 2010, applicant addressed a letter to Registrar requesting the issuance of duplicate shares in the name of the applicant. The matter had been referred to the custodian and it was clarified that the 700 shares form a part of the 1,22,881 shares.

Once against till 17th September 2018, the applicant took no action and then again addressed a letter to the Registrar. Then the applicant claimed personal difficulties and sought the issuance of a dividend in her favour. Once again, the Registrar advised the applicant to approach the Office of the Custodian.

Further, the Registrar provided details of the bonus shares and split shares from the year 1986 to 2018 which were all held under the folio of her late husband.

In 2019, the Advocate for the applicant addressed a letter to the Custodian claiming that she is a lawful and bonafide holder of 15,750 shares, Processing of the shares and issuance of duplicate shares in favour of the client and requesting information on compliance of further formalities.

Custodian informed that the applicant had to submit several documents and file an application before the Special Court and in March 2020, the applicant wrote to the Custodian annexing certain documents while contending that the original share certificates were lying with the company.

In view of the above background, the applicant approached the Court seeking certification and claiming to be the sole owner.

Analysis, Law and Decision

The Court on perusal of the facts and circumstances of the present matter, expressed that it was not clear as to why the seller of shares would not affix the correct signatures if indeed he had sold the shares for consideration, for value received. It was not an inadvertent change in the signature, the difference in the signature was sought to be obvious and factual in each of these cases.

Moreover, in Court’s opinion, the applicant could not be faulted in her attempt to obtain transmission of the shares. No malafides were attributed to the applicant by the notified party.

If indeed the shares were purchased by benamidars there was no reason why the signatories would be improper. Moreover, if the shares were indeed purchased by the benamidars and those referred to in the affidavit in reply, surely the said parties would have come forward to claim those shares. What must be noted however is that if the shares were stolen how they could have reached the Registrar is a mystery. Assuming the theft did occur the persons responsible may have submitted forms with forged signatures.

Bench stated that the shares were not transferred yet and there was nothing on record to show that the original shareholder had sold the said shares or was paid consideration for the shares.

In view of the above background, the question that arises is:

Whether the shares were liable to be now “certified”?

Court stated that Mr Mehta’s version that Radhe Shyam Agarwal sold the shares forming the subject matter of the present application could not be established.

In Court’s opinion the fact that the shares were still in the name of Radhe Shyam Agarwal and there being no evidence that these were the shares that had been acquired by notified parties, there was no reason to deprive the applicant of those shares by the Custodian retaining control of the same.

Whether shares are required to be certified under the scheme of certification and to that extent the present application is different from the regular cases of certification that come before the Special Court?

Court expressed that, it would be sufficient if the Custodian gives up the objections to the proposed transmission of shares and it is left to the applicant to pursue the transmission of shares in her favour, if the company is satisfied with the bonafides of her application.

Further, the Bench stated that the Custodian cannot object to the transmission of share in view of the material placed before the Court clubbed with the fact that the original shares since benefited from accretions all of which were retained by Registrar there was no reason for the Custodian to retain his claim to the shares.

Elaborating further on the matter, Court explained that notified parties could not establish the contention that Radhe Shyam Agarwal had sold the shares and had not affixed his proper signatures on the share transfer form as a result of which the transfer stood rejected.

In the decision of Standard Chartered Bank v. Andhra Bank Financial Services Ltd., (2006) 6 SCC 94, it was held that in order to establish ownership mere possession of original share certificates would not lead to interference of ownership and in the facts of that case the party had been able to prove purchase of the securities on the basis of cogent evidence and therefore retain title to the same.

The only significant question in the present matter was whether Radheshyam Agarwal had sold the shares and the notified part had purchased the shares?

The above-said question casts a burden on the notified party to establish a bonafide purchase which had not occasioned in the instant matter.

There was no specific record to indicate that the shares that are now subject matter of the present application were purchased. The claim was merely on the basis of a communication dated 6-10-1999 whereby Harshad S Mehta had addressed a letter without prejudice to the Custodian seeking tracing and recovery of shares of Tata Tea Ltd. All it said was that the shares might have been purchased by the three brokerage firms M/s. Harshad S. Mehta, M/s. Ashwin Mehta and M/s. J. H. Mehta or any other related notified entities or family members directly or through outside brokerage firms.

Sufficient time had also gone by but there was no evidence to back up such a claim.

Therefore, Custodian cannot retain control over the shares or claim the said shares on behalf of the notified parties.

 Hence, Radhe Shyam Agarwal was seen to be the last holder of the subject shares.

The signatures on share transfer forms are admittedly not matching with that of Radhe Shyam Agarwal, the shareholder and hence the shares continued to be in the name of late Radhe Shyam Agarwal.

Calling the claim of the notified party to be a long shot, Court held that the applicant had prima facie established that the shares stood in the name of Radhe Shyam Agarwal and continue to be held in that name.

The direction was given to the Custodian o release the shares but short of certification.

Lastly, the Court stated that the applicant may approach the Company and satisfy them that she was entitled to the transmission of the said shares on such terms that the company may deem fit.

“Custodian shall not hold back the shares and they shall stand released from attachment.”

The following order was passed:

  • The Custodian shall convey to the company that he has no claim to the 15,750 shares presently forming the subject matter of the Sub Division Advice dated 3rd July, 2010 under Folio no. TFR0006641 under Share Certificate no. 00002527 in respect of share bearing distinctive no. 3954051 to 3969800.
  • The applicant is at liberty to approach the company for transmission of these shares subject to compliance of all requirements to be specified by the company and their Share Registrar and Transfer Agent.
  • The company Tata Global Beverages Limited and its Transfer agents are permitted to consider an application for transmission of shares if made by the applicant and subject to due compliance of all requirements of the company and the transfer agents.
  • It is made clear that the court has not “certified” these shares under the scheme of certification.

In view of the above application was disposed of. [Bimla Devi Agarwal v. Custodian, Miscellaneous Application (L) No. 49 of 2019, decided on 3-12-2021]


Advocates before the Court:

Mr Muttahar Khan i/b. Mr Sukrut Mhatre, Mr Jitendra Sarda and Mr Sanjay Jadhav for the Applicant.

Mr Gandhar Raikar a/w. Ms Shilpa Bhate i/b. M/s Shilpa Bhate Associates for the Custodian.

Mr Ashwin Mehta for the Notified party.

One comment

  • Can have the contact number of the advocate, as I have a similar case for my shares in Hero Hinda

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