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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
M. S. Sonak, Jitendra Jain, JJ.
Aloysius D’Souza - Petitioner
Versus
Union of India Through the Ministry of Corporate Affairs, A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi and ors. – Respondents
Writ Petition (L) NO.22583 OF 2023
Decided On : 11-11-2024
Advocate Appeared:
For the Petitioner: Mr. Nirman Sharma a/w Ms. Sheetal Shah i/b. M/s. Mehta & Girdharlal
For the Respondent: Ms. Kanchan Phatak, Mr. Prathamesh Kamat a/w Mr. Kayush Zaiwalla, Mr. Divakar N. Dadhich, Mr. Ishan Agrawal and Mr. Ashutosh Mishra i/b. Nyaayam Associates, Mr. Rohaan J. Cama i/b. Mr. Harish Adwant and Mr. S. V. Adwant
The stock exchange lacks authority to issue a stop transfer communication regarding shares confirmed to be in the Petitioner’s name, and such communication does not constitute an order subject to appeal.
Headnote:(A) Constitution of India - Article 226 - Companies Act, 1956 - Section 108 - Quashing of communication - Petitioner sought to quash NSE's communication preventing transfer of shares and sought duplicate share certificates - NSE's communication was based on default by a trading member, but shares were confirmed to be in Petitioner’s name - Court found NSE lacked authority to issue such communication. (Paras 1, 5, 22, 35)
(B) Writ Jurisdiction - Stock Exchange - Stock exchanges are amenable to writ jurisdiction under Article 12 of the Constitution - The impugned communication was not an order or decision, thus not subject to appeal under Section 23L of the SCRA. (Paras 16, 20)
Facts of the case:
The Petitioner acquired shares of Dr. Reddy’s Laboratories Limited over several years, totaling 1800 shares post-split and bonus issues. NSE issued a communication to stop transfer of shares due to a default by a trading member, which was not communicated to the Petitioner until 2008. (Paras 2, 5, 7)
Findings of Court:
NSE's communication was quashed as it lacked authority, and the Petitioner was entitled to duplicate share certificates and dividends. (Paras 35)
Issues: Whether NSE had the authority to issue a stop transfer communication regarding shares not belonging to a defaulting member. (Paras 22, 32)
Ratio Decidendi: The court ruled that NSE's communication was unauthorized as the shares were confirmed to be in the Petitioner’s name, and the communication did not constitute an order or decision. (Paras 20, 33)
Result: The impugned communication was quashed, and NSE was directed to issue duplicate share certificates and transfer dividends to the Petitioner. (Paras 35)
JUDGMENT :
Jitendra Jain J.
1. By this petition under Article 226 of the Constitution of India, the Petitioner, an individual, has prayed for quashing of the communication dated 4 October 2007 issued by Respondent No.3- National Stock Exchange (NSE) to Respondent No.5-Transfer Agent directing them not to transfer shares held by the Petitioner in Respondent No.4-Company-Dr. Reddy’s Laboratories Limited. The Petitioner further seeks mandamus to issue him a duplicate share certificate.
Brief facts :-
2. Since 1986 to 1997, Petitioner acquired shares, in tranches, of Respondent No.4-Company. As on 10 May 1994, the total shares held by Petitioner of Respondent No.4-Company in Folio No.A00450 was 900 shares. The Petitioner subsequently sold some of these shares. In April 2007, the shares of Rs.10/- each of Respondent No.4-Company were split into shares of Rs.5/- each. After the bonus issue, these 900 shares became 1800.
3. On 19 January 2007, Respondent No.5-Transfer Agent informed the Petitioner that he held 450 shares (before split-up) of Respondent No.4-Company, whereas he had surrendered only 50 shares for subdivision. Therefore, a request was made to the Petitioner to surrender the shares certificate for the balance shares. There were proceedings initiated by the Petitioner by invoking the redressal mechanism of the Bombay Stock Exchange in this connection, but the same is not relevant for our purpose. Respondent No.4-Company has issued dividend warrants from time to time in the name of Petitioner, wherein it is stated that the Petitioner is holding 1800 shares. However, these dividends were not credited to the Petitioner’s account because of communication from Respondent No.3-NSE which is impugned in the present proceedings. The said accumulated dividends on shares has been transferred to Respondent Nos.1 and 2 being Investor Protection Fund set up by the Union of India.
4. The Petitioner made an application for the issue of duplicate share certificates concerning shares held in Respondent No.4-Company. This application was made to Respondent No.5-Transfer Agent. The Petitioner has complied with all the necessary requirements for the issue of duplicate share certificates, namely filing of indemnity, affidavit, FIR, etc. However, Respondent Nos.4 and 5 have refused to issue the duplicate share certificates on account of the impugned communication issued by Respondent No.3 to Respondent Nos.4 and 5. The Petitioner has enclosed various documents to show that the necessary requirements for the issue of duplicate share certificates have been complied with.
5. On 27 November 2007, Respondent No.5-Transfer Agent informed the Petitioner, in connection with the issue of the duplicate share certificates, that they have received letter from Respondent No.3- NSE dated 4 October 2007 directing them to “stop transfer” of shares held in Folio No.A00450 and, therefore, request for issue of duplicate share certificate is rejected. Alongwith this letter, Respondent No.5- Transfer Agent annexed the impugned communication dated 4 October 2007 issued by Respondent No.3-NSE on the basis of which the application for issue of duplicate share certificate was rejected.
6. It is relevant to extract the contents of the said impugned communication dated 4 October 2007, which reads as under :-
“We are enclosing herewith an Annexure containing list of securities withheld by the Exchange on account of default by trading members in making payments of the Exchange.
We propose to get these securities transferred in our name invoking Section 108 of the Companies Act, 1956. Please let us know the procedure that should be followed to get these securities transferred to our name.
In the event these securities have been sold / dematerialized after obtaining duplicate certificates. please be kind enough to give us the details of the Shareholder, including his full postal address who arranged the duplicate certificates. In the event the shares are still held by the share holder
