Reportable

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL No. 948 OF 2006

Varghese K. Joseph           .. Appellant Versus

The Custodian & Ors.       ..Respondents  

J U D G M E N T  

GYAN SUDHA MISRA, J.

This appeal  has been filed under Section 10 of  

the  Special  Courts  (Trial  of  Offences   Relating  to  

Transactions in Securities) Act, 1992 (hereinafter referred to  

as  ‘the  Special  Court  Act  of  1992’)  challenging  the  order  

dated 28.11.2005 passed by the Special Court constituted  

under the  Special Courts Act 1992 bearing Miscellaneous  

Application No. 536 of 2005 whereby the Special Court was  

pleased to reject the application summarily  indicating  that  

the application of the appellant for certification of shares  by

the respondent – Custodian had been received on 27.8.2005  

after the cut off date for  the certification due to which it  

could not be entertained.    

2. The  question  inter  alia  which  arises  for  

consideration in this appeal may be crystallised and stated  

as to whether the Special Court was right in rejecting the  

application of the appellant-investor seeking certification of  

the tainted shares on the ground of delay due to violation of  

cut off date in spite of absence of a statutory provision to  

that  effect  as  also  the  fact  that  the  appellant-investor  

admittedly had no role or involvement in treatment of the  

alleged equity shares as tainted which required certification  

before payment of dividends on the same.

3. The substantial details and circumstances under  

which this appeal arises indicate that the appellant herein  

who is a small investor had purchased 100 equity shares of  

the respondent No.2 Company namely Reliance Industries  

Ltd.  on  12.6.1989 and  payment  of  the  same was made  

through  his  share  broker  -  respondent  No.4  –  Abex  and  

Company which perhaps is not in existence now.  However,  

the payment for purchase of the shares had admittedly been  

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made through Union Bank of  India  by way of  a  demand  

draft.   It  is  the  case  of  the  appellant  herein  that  the  

respondent No.4 despite repeated enquiries never informed  

the appellant regarding the status of his shares and hence  

the appellant was absolutely in dark and had no clue about  

the same.  The appellant in the meantime was also living  

abroad  due  to  his  professional  obligation  and  could  not  

ascertain the fate of his shares.     

4. However, when the appellant finally approached  

respondent  No.2  –  Reliance  Industries  Ltd.   seeking  

dividend  and  other  consequential  benefits  like  issue  of  

rights  and    bonus  on  shares,  it  was  informed  to  the  

appellant  by  the  respondent  No.2  that  the  shares  of  the  

appellant on which dividend was  claimed, were found to be  

tainted and hence it was  unable  to consider the request of  

the  appellant  for  payment  of  dividends.   The  appellant,  

thereafter  also  learnt  that  there  had  been  mutual  

correspondence  between  the  share  broker  companies  i.e.  

respondent No.3 Karvy Consultants  Ltd.   and respondent  

No.4 – Abex and Company for taking the accounts of the  

shares  in question vide Annexure-P1 in order to complete  

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certain procedural  formalities.  But as per the case of  the  

appellant, neither the respondent No.3 nor respondent No.4  

cared to inform the appellant about the said development  

through which he had purchased the shares.  The appellant  

has  annexed  the  copy  of  the  letter  dated  12.7.1995 vide  

annexure P-1 which was written  by the respondent No.4 –  

Abex  and  Company  to  Respondent  No.3  –  Karvy  

Consultants Ltd.   

5. Since  the  appellant  had  been  informed  by  the  

respondent  No.2  -  Reliance  Industries  Ltd.  that  the  

dividends could not be paid to him as the shares were held  

to be tainted, the appellant also tried to ascertain the status  

of his shares purchased by him through respondent Nos. 3  

and 4.   However, it is alleged by the respondent No.3 –M/s.  

Karvy Consultants Ltd. that it had informed the appellant to  

submit appropriate application seeking certification of  the  

tainted shares as the equity shares in question stood in the  

name of  M/s.  Fair  Growth  Financial  Service  Ltd.   which  

subsequently became the subject matter of attachment as  

per the order of the Government of India since it was found  

to be involved in some scam and hence the shares issued by  

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this company required certification by the Custodian  as per  

order  of  the  Special  Court  (Trial  of  Offences  relating  to  

Transactions in Securities) Act, 1992.  But the appellant’s  

case is that he never received the said communication nor  

the said letter indicated anything  about the  cut off date for  

making  application for certification of the tainted  shares.  

Annexure P-2 is the copy of the letter dated 5.1.2001 which  

is allegedly written  by the respondent No. 3- M/s. Karvy  

Consultants Ltd. to the appellant directing him to file  the  

application seeking certification of shares.  

6. The  appellant  in  the  meantime  had  also  made  

further enquiries in regard to the certification of the tainted  

shares and also for consequential benefits which accrued on  

the shares in question.  He then learnt that he would have  

to  file  an  application  before  the  Special  Court  seeking  

direction to the Custodian for certification of shares as it  

was reiterated that the shares in question stood in the name  

of  M/s. Fair Growth Financial Services Ltd. – respondent  

No.5 which were the subject-matter of attachment as per  

the Government of India order since they were found to be  

tainted.   A clarification  also is alleged to have been issued  

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by  the  respondent  No.3  –Karvy  Consultants  Ltd.  that  in  

order  to  do justice  to  the  bonafide  investors,  the  Special  

Court in its orders dated 27.7.1992 and 31.7.1992  bearing  

Misc.  Application  Nos.  1,  2  and  3  of  1992  laid  down  a  

procedure  for certification of the tainted shares through the  

representative of the Custodian.  It was informed that the  

said Hon’ble Court  had fixed the last date for submission of  

such application for certification which was 16.8.1995 and  

the Special Court  had further directed that whoever fails to  

submit application for certification on or before 16.8.1995,  

the party would have to approach the Special Court directly  

for certification.  Subsequently, the cut-off date appears to  

have  been  extended  to  27.06.2005  as  per  order  of  the  

Special  Court  on  application  having  been  made  by  the  

custodian. Hence, it claims to have requested the appellant  

-  Mr.  Joseph  that  he  should  file  an  application/petition  

mentioning  therein  the  reliefs/directions  intended  to  be  

sought from the Hon’ble Special Court (Torts) through the  

advocate along with the documents, papers at the address  

of  the  Special  Court  which  was  stated  therein.    It  was  

further requested to the appellant to forward the relevant  

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order  from  the  Special  Court  along  with  original  share  

certificates and transfer deeds to enable it to do the needful.  

But the appellant’s case is that he never received the said  

communication etc.   

7. As per the appellant’s version the original shares  

and transfer deeds had been  delivered to the respondent  

No.4  –Abex  and  Company  –  the  share  broker  company  

through whom the appellant had purchased the shares as  

under the rules, the share certificates were not issued from  

the company to the appellant but the same was lying in the  

hands  of   respondent  No.3  i.e.  Karvy  Consultants  Ltd.  

through respondent No.4 and so the  appellant could not  

produce  the  share  certificates.   However,  the  respondent  

No.4 –Abex and Company  had assured the appellant that it  

would return the share along with the  Clearance Certificate  

from  the  Stock  Exchange  but  the  respondent  No.  3  i.e.  

Karvy  Consultants  Ltd.  was  unable  to  process  the  share  

through respondent No.6 – Madras Stock Exchange as they  

were tainted.   The appellant, therefore, stated  that he is a  

bonafide purchaser and the owner of 100 tainted shares of  

respondent No. 2 and the said shares were  required to be  

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transferred in the name of the  appellant along with all the  

accrual  till  dates  after  certification.   The  appellant  as  

already stated also learnt that the tainted shares required  

certification through  respondent No.1 – the Custodian and  

for this purpose he would be required to seek permission  

from  the  Special  Court  under  the  Special  Courts  Act  of  

1992.  

8. In  view of  the  aforesaid  position,  the  appellant  

filed  an  application  before  the  Special  Court  under  the  

provisions of Special Courts Act of 1992 wherein  he prayed  

for   certification  of  the  shares  by  the  respondent  No.1  -  

Custodian and its release and payment of accruals but as  

per  the  letter  from the  office  of  the  Special  Court  it  was  

intimated    that  the  last  date  to  submit  application  for  

certification  was  27.6.2005  and  hence  it  could  not  be  

entertained.   

9. The  appellant,  therefore,  filed  an  application  

before the Special Court on 27.08.2005 stating that he was  

not  aware  of  any  cut  off  date  regarding  the  filing  of  the  

application for certification of shares by the Custodian and  

was also not aware of the procedure or the last date of filing  

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any application for certification until he received the letter  

on 22.8.2005.  Hence, the appellant/applicant was not able  

to file any application for certification of the tainted shares  

within the time fixed by the Special Court.     

10. The learned Judge of the Special Court however,  

was  pleased  to  dismiss  the  application  on  28.11.2005  

stating  that the  plea of the applicant that he was not aware  

of  the  procedure  laid  down   by  the  Special  Court   for  

certification   of  the  tainted securities   etc.  was devoid of  

merit  and  the  application   seeking  permission  for  

certification which was  received on 27.8.2005 i.e. after the  

cut off date which was subsequently extended to  27.6.2005  

was not found fit to be entertained. Hence, the application  

was  dismissed  by  the  Special  Court  against  which  this  

appeal has been filed by the appellant  under Section 10 of  

the  Special  Courts  Act  of  1992  as  already  indicated  

hereinbefore.  

11. A  show  cause  notice  was  issued  to  all  the  

respondents  in  this  appeal  but  no  one  appeared  except  

respondent No.1 – the Custodian based at Mumbai who has  

filed reply in this appeal.  As per the reply of the Custodian  

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– Respondent  No.1 herein, the process of certification was  

being done  on a  regular basis.  But on  31.1.2005, the  

Custodian  gave  a   report  to  the  Special  Court  that  the  

Custodian/Notified party receives accrual on shares which  

were in the name of the notified party but the same were not  

physically  with the Custodian since such shares were with  

the 3rd party.  Further, in respect of shares which may not  

be in the name of the notified party but which may have  

been  dealt with by the notified party, the dividends on such  

shares were either kept in abeyance by the company or were  

passed  on  to  the  Custodian  by  the  companies  pending  

certification.   

12. It is in view of the aforesaid procedure as also the  

fact  that  the  shares  were  found  to  be  tainted,  the  

certification  of  the  shares  purchased  through  an  

intermediary  which in this case is respondent No.4 – Abex  

and  Company  and  respondent  No.  3  –Karvy  Consultants  

Ltd.,  became necessary.  But  it appears that the Custodian  

had  been  receiving   applications  for  certification  of  the  

tainted shares off and on which dividend was to be paid to  

the party holding  the shares  and was to be  disbursed to  

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them through the Custodian.  It has been admitted by the  

Custodian  in  his  reply  that  the  dividends  which  were  

received  by  the  Custodian  came  automatically   from  the  

company  either by way of dividend warrants or through the  

Electronically Clearing System (ECS).  The Custodian stated  

that  these  dividends were  not  kept  separately  from other  

moneys   of  the  concerned  notified  party  in  the  attached  

accounts.    It  was therefore suggested that bonus shares  

may be kept in abeyance  by the companies  or may be sent  

to the Custodian  by the concerned companies.   In such  

case  also  bonus  shares  received  by  the  Custodian  were  

disposed of by the Custodian  as per the procedure  for sale  

of shares laid down by the Special Court.

13. It was further stated by the custodian in his reply  

that  the  distribution/ad hoc payments from the attached  

account of the  notified parties admittedly  were made in  

accordance   with  the  order  passed  by  the  Special  Court  

from the moneys  that were available in the attached  bank  

account of the notified parties as these attached accounts  

also included  accruals (dividends/sale proceeds of bonus  

shares)  which was not separate from other moneys   in the  

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attached account.   It was, therefore,  submitted before the  

Special Court   by the Custodian in Miscellaneous Petition  

No.1   in  Bombay Stock Exchange vs. The Custodian and  

Assistant Commissioner of Income Tax along with a batch of  

several other analogous petitions that as there was no time  

limit   for  the  affected persons to approach the  Hon’ble  

Special Court  for certification and such certification  could  

be directed by the  Hon’ble   Court  (Special  Court)  at  any  

point  of  time,  it  was  apprehended   that  in  such  

circumstance a situation might arise  where shares may be  

allowed to  be  certified   by  the  Hon’ble  Court   even after  

substantial   payments  were  made  either  by  way  of  

distribution or  ad hoc payments due to which it  would be  

difficult  for  the  Custodian  to  pay  over  the  accruals   on  

certified  shares  for  want  of   moneys   in  the  attached  

accounts.   A  direction,  therefore,  was  sought  by  the  

Custodian from the Special Court  to the following effect:-

“(a) That a  Pubic Advertisement be issued  by  the  Custodian  calling  upon  all  persons  holding  “Tainted”  shares  (i.e.  shares  either  standing in the name of a notified party or  dealt  with  by  the  notified  party)  to  submit  their  applications  for  certification  of  such  

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shares  to  this  Hon’ble  Court  within  such  period  as  this  Hon’ble  Court  considers  appropriate.

(b)         That  no  applications  for  certification  will  be  entertained  by  the  Custodian  or  by  this  Hon’ble  Court  on  the  expiry of such period as the Court may direct  under Clause (a).

(c) That no claims shall lie against the  Custodian  or  against  a  notified  party  for  payment of accruals on shares with the third  party  unless  such third  party  has  filed  his  application for certification within the period  specified in Clause (b).  

(d) Any  other  orders/directions  as  deemed  fit  by  this  Hon’ble  Court  in  the  matter.”

14. The Special Court  taking  an overall view of the  

matter granted the request in terms of prayer clause (a), (b)  

and (c).   However,  for  the  purpose  of  clause  (a)  60  days  

period was fixed.

15. Pursuant to the  order dated 16.3.2005 notices  

were  issued  in  32  dailies  which  stipulated  that  the  

application  for  certification  by  the  purchasers  must  be  

made   within  60  days  from the  date  of  issuance  of  the  

notice.  It was also clearly stipulated that no application for  

certification would be entertained after the period of 60 days  

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from the date of notice and that no claims shall lie against  

the Custodian or against the notified party after the lapse of  

60  days  of  the   notice.   The  public  notice  which  were  

published in 32 different newspapers is dated 29.4.2005.  

Thus,  according to the respondent – Custodian no claim for  

certification could have been entertained after the expiry of  

60 days period which expired on 27.6.2005.   

16. The  appellant,  however,  filed  an  application  

bearing Misc. Application No.536/2005 in the Special Court  

at Bombay  on 27.8.2005  praying therein for a direction to  

the  Custodian   that  the  100  shares  purchased  by  the  

appellant  herein   bearing  Certificate  Nos.  3489027  and  

8170517,  Distinctive  Nos.  D-915292605  to  654  and  D-

114196259 to 308 of the notified company may be declared  

as   bonafide  purchaser/owner  of  the  said  shares.   A  

direction  was sought to  the Custodian and/or  company to  

release/pay all the accruals declared from time to time till  

date  on  the  said  100  shares.   As  already  stated,  the  

application  was  rejected  by  the  Special  Court  by  a  

summary order indicating that the application could not be  

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entertained since the same had been received after the cut  

off date of 27.6.2005.

17. Challenging  the  order  passed  by  the  Special  

Court,  the  counsel  for  the  appellant  submitted  that  the  

application  filed  by  the  appellant  for  certification  of  his  

shares  and  thereafter  granting  consequential   benefits  

accruing  on the 100 shares which were purchased  by the  

appellant, could not have been rejected only on the ground  

that it had been filed beyond the cut off date i.e. 27.6.2005  

as the appellant who was  not in the country throughout  

and  was living abroad had not been informed at all by any  

of the concerned respondents that the shares were tainted  

which required certification within a cut off date and when  

he  made  enquiries  on  his  own,  he  could  know  of  the  

developments.

18. Learned counsel for the respondent – Custodian  

however  sought  to  justify  when  he  submitted  that  the  

rejection  of  the  application  by  the  Special  court  for  

certification of the shares of the appellant was absolutely  

correct  as  the   Special  Court  itself  had  permitted  the  

Custodian  to  publish   a  notice  inviting  applications   for  

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certification of the shares held by the  public at large in  

which  60 days time was granted to file such application  

which  expired  on  27.6.2005.   The  counsel  for  the  

respondent – Custodian  submitted that  the cut off  date  

having been laid down by the Special Court  fixing a cut off  

date  for  filing  application  for  certification  of  the  shares  

through  the  Custodian,  could  not  have  been  entertained  

beyond  the  cut  off  date  and  hence  even  though  the  

appellant might be a bonafide purchaser  of the shares of  

respondent  No.  2  –  Reliance  Industries  Ltd.   which  was  

purchased through respondent No.4 – Abex and Company,  

the same  could not have been entertained for certification  

after the cut off date.    

19. While  testing  the  relative  strength  of  the  

submission  of  the  learned  counsel  for  the  parties  in  the  

light  of  the  background,   facts  and circumstances of  the  

case, it could not be overlooked that the transaction of sale  

of  securities  (as  defined  under  the  Securities   (Control)  

Regulation  Act,  1956)  by  a  notified  person  either  as  a  

registered  holder  or  as  an  intermediary  purchaser  is  

deemed to be bonafide provided such a transaction under  

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the  provisions  of   Securities  Contracts  (Regulation)  Act,  

1956  is  effected  through  a   number  of  stock  exchanges  

recognised under the provisions of Securities Contract Act  

and is in accordance with  the rules and bye-laws of the  

stock exchanges.  It further  lays down  that the purchase  

will be deemed to be  bonafide  provided the sale   is at the  

price which is lower than the  lowest price  for which the  

securities   were  traded   on  the  date  of  the  transaction  

except in cases  of discount given  on bulk purchased  by  

the  institutions  and   the  full  sale  price   relating  to  the  

transaction is proved to have been received by the notified  

persons.   

20. The aforesaid position is clearly admitted by the  

Custodian – Respondent No.1 himself  which is borne out  

from the reply filed by him.  Thus the appellant who had  

purchased  the  shares  of  the  respondent  No.2  –  Reliance  

Industries  Ltd.   through  respondent  No.4  –  Abex  and  

Company   whose  affairs   were  later  taken  care  of   by  

respondent No.3 – Karvy Consultants Ltd. also and perhaps  

respondent No.5 – M/s. Fair Growth Financial Service Ltd.  

would  clearly  be  deemed   to  be  bonafide   purchase.  

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However,  since  the  shares  in  question  were  held  to  be  

tainted by order of the Government of India due to which it  

was  not  honoured  by  the  respondent  No.2  –  Reliance  

Industries Ltd., the need arose for its certification through  

the  Custodian  under  the  control  and  supervision  of  the  

Special  Court  constituted  under  the  Act  of  1992.  

Meanwhile,  long  time  had  elapsed  between  the  date  of  

purchase and the application for certification of the shares  

and obviously during this long period it is the respondent –

Custodian in coordination with the  notified company and  

the  share  brokers  respondent  Nos.  3  and  4  (Karvy  

Consultants  Ltd.  and  Abex  and  Company)   who  was  

responsible to certify the shares of the notified company so  

that the dividends accruing on the shares could be paid.  

In the process, no doubt, the respondent No.1 – Custodian  

encountered  several  procedural   hassels  as  the  claim  of  

payment  were made at frequent intervals by large number  

of investors holding the shares which were informed to be  

tainted and hence required certification by the Custodian.  

21. The  respondent  No.1  –  Custodian,  therefore,  

although might have been justified in filing an application  

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before the Special  Court requesting to fix   a cut off  date  

during which it could facilitate certification of the tainted  

shares,  the  cut  off  date  sought  by  the  custodian  and  

accepted by the Special Court cannot be construed so as to  

have  a  binding  effect  of  statutory  nature  under  the  

provisions of the Transaction of Sale of Securities Act, 1956,  

wherein there  is  no  fixed   time limit   for  encashment  of  

shares  nor  there  is  prescribed  procedure  for  certification  

which emerged only on account of extraordinary situation  

when certain shares were found to be tainted which were  

floated  by  Respondent  No.5  M/s.  Fair  Growth  Financial  

Services  for  Respondent  No.2  –  Reliance  Industries  and  

were  traded through share  brokers  like  Respondent  No.3  

and 4 herein.  

22. At this stage the salutary object and reasons of  

the Act  also will have to be taken into consideration while  

interpreting  and  applying  the  provisions  of  a  statute  

wherein efforts are required to be made in construing the  

different provisions so that each provision will have its play  

and  in the event of any conflict, a harmonious construction  

is  required  to  be  made  so  that  an  honest  and  bonafide  

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investor is not duped of his  hard earned money which he  

invests  by  purchasing  the  equity  shares  of  a  company.  

Admittedly, the Trial of Offences Relating to Transactions in  

Securities Act, 1992 had been enacted and given effect to in  

order to prevent undesirable transactions in securities  by  

regulating the business of  dealing therein as also certain  

other matters connected therewith which also provided for  

the establishment of a special court for the trial of offences  

relating  to  transactions  in  securities  and  for  matters  

connected  therewith  or  incidental  thereto.   The   courts  

specially  the  Special Courts under the Act of 1992 has to  

bear  in  mind  the  objects  and  reasons  of  this  Act  which  

clearly indicate that  in course of the investigations by the  

Reserve Bank of India,  large scale irregularities  and mal  

practices   were  noticed  in  transactions  by  both  the  

Government and other securities through some brokers in  

collusion  with  the  employees  of   banks,  companies  and  

financial  institutions.   The  other  irregularities  and  

malpractices led to the divergence of funds from  banks and  

financial institutions to the individual accounts of certain  

brokers.   In  order  to  deal  with  the  situation  and  in  

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particular  to ensure speedy recovery of  the huge amount  

involved, to punish the guilty and restore confidence and to  

maintain the basic integrity and credibility of the banks and  

financial institutions, the Special Courts (Trial of Offences  

Relating  to  Transactions  in  Securities)  Act,  1992  was  

enacted for speedy trial of offences relating to transactions  

in securities  and disposal of properties attached.  This Act  

envisages  the  appointment  of  one  or  more  custodians  to  

take steps for guarding the interests with a view to check  

the diversion of funds invested in the form of shares by the  

offenders which may be in the form of companies or share  

brokers.  Therefore, the duty of the custodian as also the  

special court  is  to take into consideration that while  the  

plea of the custodian for facilitating certification of  shares  

by fixing  cut off date might have been reasonable in the  

given situation where large number of investors were filing  

applications for certification of the tainted shares  time and  

again and hence cut off date might have been justified, it  

was also expected to take care and guard the interest  of the  

investors  who are   based and live  not  merely  within  the  

geographical  boundaries  of  the  Special  Court  which  had  

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fixed the cut off date but also live far and wide even across  

the  boundaries  of  the  country  which  is  the  fact  in  the  

instant matter also.  Hence, in our considered view, it was  

obligatory  on  the  part  of  the  Special  Court  and  the  

Custodian to notice an important fact that when the shares  

purchased  by  the  appellant  were  reported  to  be  tainted  

which  was  issued  through  Respondent  No.5-M/s.  Fair  

Growth  Company  by  the  share  broker  companies  i.e.  

Respondent No. 4 and 5 and the same was ordered to be  

attached by the  Custodian in  view of  the  Government  of  

India  Regulation  it  was  clearly  nefarious and  dubious  

activity   on  the  part  of   the  Respondent  No.5-M/s.  Fair  

Growth  Financial  Service  Ltd.  due  to  which   the  

unnecessary hassle  of certification of the shares issued in  

the name of M/s. Fair Growth Company became essential.  

The investors like the appellant herein  had absolutely no  

role in such activity and hence  even if the cut off date was  

fixed by the Special Court for certification of such shares,  

the  same could  not  have  been enforced  oblivious   of  its  

repercussion on those  investors who could not  approach  

the Special Court  for certification for reasons beyond their  

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control  as  it  has  happened  in  the  case  of  the  appellant  

herein  who  could  not  approach  the  Special  Court  for  

certification of  his tainted shares for  reasons which have  

been elaborated hereinbefore.  

23. In the instant matter, we have noticed that the  

appellant/applicant  had  filed   an  application  before  the  

Special  Court  seeking  a direction for  certification  of  the  

shares on 27.8.2005 which even if counted from the cut off  

date, would  at the most was  delayed by two months as the  

appellant   had  not  received  any  notice  which  could  be  

proved,  indicating that the application for certification had  

to be filed  by 27.6.2005 although the same  is asserted by  

the respondent-Custodian,  which cannot   be accepted in  

absence  of appearance  of respondent Nos. 3 and 4.  But  

even  if  it  were   so,  the  Court  should  have  certainly  

considered the circumstance whether  a bonafide purchaser  

of shares could be denied his due merely  on the ground  of  

violation of a cut off date which clearly  did  not have its  

existence in the statute  and hence had no statutory force.  

The order sought from the Special Court to fix a cut off date  

for  receiving  application  for  certification  was,  therefore,  

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based merely on the theory of convenience of the custodian  

clearly ignoring its ramification on the bonafide investor. It  

is common knowledge that when public at large invest in  

securities by purchasing  shares of a notified company, it  

purchases  through  various  modes  including  the  modern  

tools  and  technique  of  internet  and  many  other  modern  

modes and methods.  But thereafter, if the shares are held  

to  be  tainted  which  is  clearly  beyond  the  control  of  the  

appellant/investor  and  its  certification  is  required,  it  is  

surely  the  custodian  in  co-ordination  with  the  company  

floating  shares as  also  the  share  broker  company or  the  

stock exchange, which has the onus and responsibility to  

take  care  of  the   interest   of  the  investors  under  the  

supervision of the Special Court in view of the provision of  

the Special Courts Act of 1992.  The ‘Custodian’   therefore  

cannot   shirk away from his  function and the duty  cast  

upon him by limiting his responsibilities  and seeking a cut  

off  date  during which only he  could perform the duty of  

certification,  oblivious  of  its  consequence   and  other  

ramification   on  the  investors   which  include   small  

investors  also who  put in their  hard earned money  in  the  

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shares of the company and later comes to know that the  

shares were tainted on which the investor has absolutely no  

role or control.   

24. Even if we were to appreciate  certain limitations  

on the discharge of duties of certification by the Custodian,  

the Special Court clearly  had the duty to ensure that in  

absence of a statutory time limit prescribed for certification  

of shares under the  Act of  1956,  read with the Special  

Courts Act of 1992, the Special Court  was duty bound to  

guard the  interest  of the investors  through the Custodian  

at  least  in  case  of  those  investors  who  had  bonafide  

purchased   the  shares  of  a  notified  company  which  for  

reasons beyond  the control  of investors, was held to be  

tainted.   

25. Hence,  in our considered opinion, the appellant  

under the facts and existing  circumstances  of  the case  

where  he ended up  buying tainted shares  for no fault on  

his part  but had to seek its certification from the Custodian  

under compelling circumstance which was not his creation  

and also had no control, could not have been denied   his  

due  on  the  ground  of  delay  in  filing  the  application  for  

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certification  specially  when  the  appellant  had  sought  

certification of his shares  only  after two months of  the cut  

off date for reasons beyond his control which cut off date  

has no statutory effect or legal force.  The appellant on the  

one hand was saddled with the tainted shares for no fault  

on his part through respondent Nos. 4, 5 and 6 on which he  

had no control or any role to play and on the top of it, when  

he sought a remedy of certification for claiming dividends,  

he  had  to  suffer  an  order  by  which  his  application  was  

rejected  on  the  ground  that  he  had  not  moved  an  

application within the cut off date which had no statutory  

force  as  the  same had been fixed at  the  instance  of  the  

Custodian seeking approval from the Special Court.   

26. As a consequence of the aforesaid discussion, we  

set aside the impugned order of the Special Court and allow  

this appeal as a result of which the respondent – Custodian  

shall entertain the application filed before the Special Court  

for certification of his shares and verify the claim  of the  

appellant  in regard to the  shares bearing Certificate Nos.  

3489027 and 8170517  Distinctive  Nos.  D-915292605 to  

654  and  D-114196259  to  308  and  ensure  payment  of  

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dividends  on  those  shares  after  certification  by  the  

respondent  No.2.   If  necessary  the  Custodian  may  co-

ordinate with the concerned stock exchange and the  share  

broker companies i.e. respondent No.4 – Abex and Company  

as also  respondent  No.3 –  Karvy Consultants  Limited  for  

ensuring release of  payment accruing as dividend on the  

shares noted hereinbefore. In case of default in any manner,  

it shall be the duty of the Custodian to take recourse to the  

remedy against any defaulting party in accordance with law.  

The appeal accordingly is allowed.

………………………………J (Markandey Katju)       

………………………………J         (Gyan Sudha Misra)                      

New Delhi, January 31, 2011                

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