IN THE HIGH COURT OF BOMBAY 

Appearances : S. U. Kamdar and Matubhai Jamietram for the Petitioner. 

Mr. S. V. Bharucha and S. V. Daijode for the Respondent. 

JUDGMENT 

REBELLO, J. 

1. The pleadings are prolix. The few facts, however, necessary to decide the reliefs prayed for are as under. The petitioners had purchased debentures from their holders, which will be hereinafter referred to as debentures Part 'C' of the respondent-company. The subject of the present petition are the following debentures : 

(a) 16,000 Part 'C' debentures purchased from a group known as Uttamchandani; 

(b) 20,000 Part 'C' debentures standing in the name of Suryakant A. Patel and Snit. Jyotsnaben S. Patel; and 

(c) 92,000 Part 'C' debentures standing in the name of two Jains and two Patkars and two Shahs 

When these debentures were forwarded to the company for transfer in the name of the petitioners, the transfer was not effected on account of the defects pointed out by the respondent. The defects may be listed as under : 

(i) in respect of Uttamchandani, the objections were that no Reserve Bank of India's (hereinafter 'the RBI') permission had been forwarded and secondly, that there was a difference in the specimen signature of the transferor and the signature on the transfer form; 

(ii) insofar as Shri Suryakant A. Patel and Smt. Jyotsnaben S. Patel, the objection is that the name of the witnesses were not disclosed in the transfer documents; and 

(iii) insofar as the Jains, Patkars and Shahs are concerned, the objections were two-fold. Firstly, there were orders by the Enforcement Directorate who had investigated matter under the Foreign Exchange Regulation Act, 1973 (hereinafter 'the FERA') that the transfer should not be effected and secondly, there was difference in specimen signatures and the signatures on the transfer forms. 

From the correspondence on record and the material available, the objections can now be dealt with. 

2. Insofar as Uttamchandanis are concerned, the argument was that there was no permission of the RBI. It is contended on behalf of the company that they wrote to the petitioner on 23rd December, 1991 that the RBI permission had not been forwarded. On the contrary, it is the case of the petitioners that these debentures form part of the 5,58,000 debentures lodged with the company along with the RBI permission, as set out in para 9 of the affidavit in rejoinder of Shri Bharat Kantilal Vajani. It is no doubt true that the learned counsel for the company has pointed out that there are two different dates insofar as Uttamchandanis are concerned. The RBI's permission is purported to have been forwarded on 16th September, 1990, whereas insofar as 5,58,000 debentures are concerned, they were lodged with the RBI's permission on 27th September, 1990. However, the fact remains that the petitioners have averred that the permission was taken. The Enforcement Directorate, who has been enquiring about other 92,000 debentures, has not enquired about these 16,000 debentures and in the light of that, the averment by Shri Bharat Vajani that the RBI permission had been submitted can be accepted. However, what remains is the objection by the company that there is difference in signatures. In that light of the matter, it would not be possible to grant the reliefs as prayed for by the petitioners. However, suitable directions can be passed insofar as the amount due and payable against these debentures are concerned. 

3. Insofar as the 20,000 Part 'C' debentures of Mr. And Mrs. Suryakant Patel are concerned, the only objection was that the names of the witnesses were not shown in the transfer document and secondly, there was an objection raised on behalf of the transferor. Insofar as the objection by the transferor is concerned, no legal proceedings have been initiated against the petitioners and/or the company and in the light of the matter once the signatures tally, it will be difficult to hold the objection as valid to disentitle rectification of the register of the debentures. The other objection regarding names of witnesses. It is pointed out by the learned counsel for the company that the names of the witnesses are shown in the transfer document itself. Once that be the position insofar as these 20,000 debentures are concerned, the reliefs as prayed for by the petitioners herein can be granted as also consequential relief or paying the amount on maturity and interest thereon. 

4. Insofar as the objections regarding the 92,000 Part 'C' debentures are concerned, the Jains and Patkars have given their no objection. Therefore, the objection regarding signatures insofar as they are concerned will no longer survive. The only objection would be to 20,000 debentures standing in the name of Shahs against whom there is an objection that their signature differ. The other objection is in respect of the order of the Enforcement Directorate. The Enforcement Directorate has filed the affidavit dated 25th February, 1999 of Shri S. L. J. Gallyot, Assistant Director of Enforcement Directorate, FERA. The said objection also can be dealt with by protecting the interest of the Enforcement Directorate in the event any adverse order is passed in respect of the said 92,000 debentures. 

5. The petition had come up for hearing at the request of the petitioners, as it was the contention of the petitioners that they had floated a mutual fund which is due to be redeemed on 13th March, 1999. 

6. It may also be clarified at this stage that section 155 of the Companies Act, 1956 (hereinafter 'the Act') has since been omitted. However, there has been amendment to section 111 of the Act and by virtue of sub-section (4) of section 111,
section 155 has been bodily incorporated as Act, sub-section (4) of section 111. Earlier an objection had at been taken that there was no rejection or refusal to register as contemplated by section 155. In view of the at objection, this court passed an order dated 30th April, 1991, directing the company to communicate its decision to the petitioners in writing on or before 3rd May, 1991. Pursuant to the said order dated 30th April, 1991 the company has by its letter of 3rd May, 1991 given the reasons as to why the transfer could not be effected and consequently, why the register could not be rectified. 

6.1 I have seen the reliefs prayed for and the question that would arise in the matter. To my mind the said question can be decided by this court considering the law as now laid down by the Apex Court in the case of Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd. [1998] 30 CLA 355/[1998] 94 Comp Cas 310. The Apex Court has now held that it is the company court (after amendment to section 111, the Company Law Board) which will have at exclusive jurisdiction to decide issues unless the issues require going into issues involving title, etc., in which event it will be the civil court that can decide the said issue. Considering the law laid down by the Apex Court in Ammonia Supplies Corpn. (P.) Ltd. case (supra), the objection raised earlier and the objections raised and the issues which arise can now be decided. 

7. (1) Insofar as the objection regarding Uttamchandanis are concerned, the relief as prayed for cannot be granted as apart from Uttamchandani having written to the company that they may have lost the debentures, the signatures themselves are in dispute. In that light of the matter, the petitioners will have to be relegated to a suit for the purpose of getting the declaration that they are the owners of the said debentures and consequent to such declaration, the respondent-company can be called upon to rectify the register of debentures if the relief granted so warrant. Amount on redemption and accrued interest can be provided for whilst passing the final order. 

(2) Insofar as the debentures pertaining to Mr. and Mrs. Suryakant A. Patel are concerned, there can be no objection and the directions can be issued to rectify the register and record the name of the petitioners in the register maintained. The money from redeemed debentures and the interest accrued thereon to be paid to the petitioners. 

(3) Insofar as the balance 92,000 Part 'C' debentures are concerned, there is no objection for rectification of the register insofar as Jains and Patkars are concerned except the objection raised by the Enforcement Directorate that the acquisition of the debentures was in contravention of the provisions of the FERA. There are no other objections. These debentures total to 72,000 being 36,000 each. There cannot be any objection for rectification except to protect the interest of the Enforcement Directorate. Insofar as the 20,000 debentures stand in the name of Shahs, they were returned on the ground that there was a dispute regarding signature. Petitioners will have to be relegated to a suit and suitable directions can be made insofar as the redemption value of the debentures and accrued interest thereon are concerned. 

8. Insofar as the objections by the Enforcement Directorate are concerned, from the correspondence it emerges that the original transfer documents were seized by the Enforcement Directorate. However, on behalf of the Enforcement Directorate it is pointed out that from the correspondence it is apparent that the documents were given to the petitioners. Letter dated 9th April, 1992 by the company to the petitioners show that only photostat copy of the original transfer deed were sent to the company along with the debenture certificate. The debentures seem not to be available. The Enforcement Directorate to handover the original transfer deeds if in their possession within 30 days from today. In the event that is not done, the petitioners are directed to forward the xerox copies along with the affidavit affirming that the xerox copy is a part of the photocopies which were forwarded by the company to the petitioners. The company to effect transfer in their register on such submission. 

9. Insofar as the Enforcement Directorate are concerned, their interest can be protected by directing the petitioners herein to file an undertaking that in the event of the Enforcement Directorate passes any order of confiscation, petitioners undertake to this court to refund the monies received along with interest at 10 per cent subject to the legal remedies that they may have and any interim order that may be passed in the legal remedy that they may pursue. As the petitioners had purchased the debentures, any order of confiscation would have adverse effect on their civil rights, the Enforcement Directorate to issue them notice and proceed according to law. 

10. In the course of arguments it is contended on behalf of respondent No. 1 that they had paid in some cases interests directly to the persons whose names were shown in the registers. It is their contention that a mandatory duty was cast on them to pay interest as required by the provisions of the Act, read with the Securities Contracts (Regulation) Act, 1956 (hereinafter 'the SCRA'). On the other hand, on behalf of the petitioner, it is contended that the matter was subjudice before this court and the court was seized of the matter. The challenge in the petition was to the refusal of the registration on extraneous grounds and/or on non-existing grounds. 

11. It is true that, as pointed out in a notice of motion taken out, relief was granted to pay interest to the petitioner in respect of certain debentures. That by itself, it is pointed out, would not be sufficient to hold that respondent No. 1 could, without considering that the matter was in issue before this court, pay interest to the persons in whose names the shares were transferred. It is pointed out that the relief, if granted, would relate back to the date of the order. From the order of this court passed in notice of motion, the interest is made payable only from the date of the court directed the registration. 

12. In terms of the debenture deed, clause 9 provides that debentures shall be transferable and transmissible in the same manner and to the extent and subject to the same restriction and limitation as in the case of the shares of the company. What this means is that the same procedure for transferring of shares of the company will also be applicable in respect of transfer of debentures. In terms of section 205A read with section 206 and section 207 of the Act, dividend insofar as shares is concerned has to be paid as set out therein. Parties are agreed that the same procedure will also be applicable insofar as the interest on debentures are concerned. Section 205A contemplates that if the dividend has not been paid within the time set out, the company has to transfer unpaid dividend to a special account. Under section 206 the dividend has to be paid only to registered holder of such shares or to his order or to his banker. Similarly, under section 207, if the company fails to pay the dividend, the director and others set out therein are liable for prosecution and imprisonment. Section 108 contemplates that no debenture shall be registered unless accompanied in a manner set out therein. Section 111 is the power to refuse registration. Under section 2(h) of the SCRA, read with rules, defines 'securities' which includes debentures. Section 27 of the SCRA provides that it shall be lawful for the holder of any security whose name appears on the books of the company issuing the said security to receive and remain any dividend declared by the company in respect thereof for any year, notwithstanding that the said security has already been transferred by him for consideration, unless the transferee,who claims the dividend from the transferor, has lodged the security and all other documents relating to the transfer, which may be required by the company, with the company for being registered in his name within fifteen days of the date on which the dividend became due. The period is specified in terms of the Explanation. Sub-section (2) further provides that nothing contained in sub-section (1) shall apply to the right of a company to pay any dividend which has become due to any person whose name is for the time being registered in the books of the company as the holder of security in respect of which the dividend has become due. Similarly, under sub-section (2)(b) of the SCRA, the transferee of any security has the right to enforce against the transferor or any other person his claim, if any, in relation to the transfer in any case where the company has refused to register the transfer of the security in the name of the transferee. All that means is that even though there is a transfer of security, the person in whose name the security is registered is entitled to receive the dividend unless the transferee take steps to get his name transferred. However, the mere fact that the transferor has received the interest does not affect the right of the transferee to enforce against the transferee or any other person his right, if any. In other words, the transferor becomes merely the person who hold the interest on the security for and on behalf of the transferee. From the above, can the contention of respondent be accepted that in terms of the requirement of law they have paid the interest in favour of those whose names were appearing in the register. 

13. The respondent No. 1 initially had merely returned the transfer forms. It is only pursuant to the order dated 30th April, 1991 of this court that by letter of 3rd May, 1991 the respondent rejected the transfer application and/or disclosed the reason for the rejection. The respondent No. 1 in respect of 16,000 and 20,000 debentures, which were held in objection, has paid dividend to registered holders and in respect of the balance 92,000 debentures has deposited the same with the Enforcement Directorate pursuant to direction issued by the Enforcement Directorate. Therefore, the only question is in respect of interest on the 16,000 and 20,000 debentures. Out of these, 16,000 debentures were purchased from a group known as Uttamchandani. In respect of the debentures held by Uttamchandani, no relief for registration can be granted in favour of the petitioner's. The petitioners, therefore, at the highest, while suing Uttamchandani, also can sue them for the interest which they have received. That leaves 20,000 debentures standing in the name of Suryakant A. Patel and Smt. Jyotsnaben S. Patel. Here also in respect of the 3rd, 4th and 5th instalments, the interest has been deposited with the Enforcement Directorate to pay the said interest on the said 20,000 debentures to the petitioners subject to the terms and conditions as will be set out. That leads us to the remaining interest payable on the other debentures. In respect of unpaid interest, respondent No. 1 can be directed to pay the said interest to the petitioners. That only leaves the balance interest which was paid to Mr. Suryakant A. Patel and Smt. Jyotsnaben S. Patel. In these two cases, it has been held earlier that the refusal to register is not sustainable. Once the reason itself is found not to be non-sustainable and direction given to get the debentures registered in the name of the petitioners, the respondent No. 1 would be duty bound to pay interest to the petitioners. The argument that they had paid interest to the persons whose name appeared in the register cannot be sustained as the respondent No. 1 is a party to these proceedings. It has made payments in respect of debentures claimed by the petitioners at their own risk. It is, however, always open to respondent No. 1 to file a suit against the said persons for recovery of interest wrongly paid to them. 

14. Having said so, the reliefs to be granted can now be crystallised as under : 

(a) Respondent-company to rectify the register of debentures in respect of 20,000 debentures standing in the names of Shri Suryakant A. Patel and Smt. Jyotsnaben S. Patel in favour of the petitioners and consequently, to pay to them the redemption amount along with all interest thereon except the interest deposited with the Enforcement Directorate. The Enforcement Directorate to deposit the interest of 3rd, 4th and 5th instalment on an amount of Rs. 2,29,600 within twelve weeks from today. Liberty to the petitioners to withdraw the said amount. 

(b) Respondent-company in respect of 72,000 debentures standing in the name of Jains and Patkars to rectify the register in favour of the petitioners and to pay the redemption amount alongwith pending interest. The Enforcement Directorate, with whom the balance interest is deposited, to deposit the interest received by them on these debentures in this court within twelve weeks from today subject to their rights of refund from the petitioners of redemption amount and interest alongwith 10 per cent interest from the date of deposit till refund the event of passing of any order of confiscation. 

(c) Insofar as 16,000 debentures standing in the name of Uttamchandani and 20,000 debentures standing in the name of Shahs, relief rejected. Petitioners are directed to file a suit and seek appropriate declaration. In the meantime the redemption amount to be deposited in this court within eight weeks from today along with unpaid interest, if any. Company to inform the petitioners of such deposit. Petitioners to file a suit thereafter within eight weeks from such communication. The Enforcement Directorate to deposit the interest received by them for the 20,000 shares standing in the name of Shah's in this court within twelve weeks from today. The amount deposited to be transferred to the said suit account. Liberty to the petitioners to apply for directions in the said suit. The civil court to pass orders after hearing Enforcement Directorate and securing the Directorate in respect of the debentures standing in the name of the Shah's. 

(d) In respect of payment of interest on the debentures held by Mr. Uttamchandani, the prayer for interest is rejected. Liberty to the petitioners to claim the interest received by Mr. Uttamchandani in the suit that they may file against Uttamchandani, if so advised. 

(e) In respect of the interest paid to Suryakant A. Patel and Smt. Jyotsnaben S. Patel by respondent No. 1, the respondent No. 1 is directed to pay to the petitioners the first, second and sixth to eighteenth instalments as also remaining unpaid interest. 

(f) Liberty to the respondent No. 1 to sue Shri Suryakant A. Patel and Smt. Jyotsnaben S. Patel for recovery of the interest wrongly paid by them to the petitioners, if so advised. 

(g) Petitioners insofar as 72,000 debentures are concerned and the redemption value received thereon including interest, to file an undertaking to refund the amount to the Enforcement Directorate in the event of any order is passed adverse to the petitioners along with interest at 10 per cent from the date of payment/deposit till repaid. The undertaking to be filed in this court within four weeks from today. On filing such undertaking, liberty to the petitioners to withdraw the amount deposited. 

16. In the circumstances of the case, there shall be no order as to costs.