Power Grid Corporation Of India ... vs Citi Bank N.A. And Anr.
2002 Latest Caselaw 1843 Del

JUDGMENT

Vikramajit Sen, J.

1. This Order shall decide the oral submission of Mr. Mukul Rohatgi, Learned Additional Solicitor General, to the effect that the present Appeal as well as the original proceedings under Section 111 of the Companies Act (hereinafter referred to as 'the Act') should be finally disposed of by the dismissal of the latter lis. Accordingly to Mr. Rohatgi since the applicant before the Company Law Board Northern Region Bench, New Delhi (hereinafter referred to as 'CLB') namely CITIBANK N.A. (Respondent No. 1 hereinafter CITIBANK) has transferred or returned the subject 'Bonds' to Canbank Financial Services Ltd. (Respondent No. 2 in this Appeal having been imp leaded before the CLB as Respondent No. 2, hereinafter CANFINA), CITIBANK had ceased to have any further interest in the proceedings before the CLB, which proceedings should therefore be terminated by this Court. The original proceedings before the CLB have been stayed in this Appeal in terms of Orders dated 15.3.1995. CITIBANK has not put in any representation after 12.04.1999. Mr. V.N. Kaura, Learned Counsel for CANFINA has contended that even in the absence of CITIBANK/Respondent No. 1, CANFINA should be heard in the Appeal as it now represents CITIBANK No. 1 in the capacity of its assignee, by virtue of an Agreement between these two parties dated 10th January, 1995. It is his further contention that CANFINA has full legal authority and standing to prosecute the original proceedings before the CLB as the assignee of CITIBANK. An affidavit on behalf of CITIBANK dated 5.8.1996 has been filed in these proceedings by which a copy of the said Agreement has been placed on record. Mr. Kaura's contention is that the plea presented by Mr. Rohatgi should properly be addressed to the CLB. I have also heard arguments on the point of whether CANFINA should at all be permitted to address arguments in this Appeal for the reason that CITIBANK had initiated proceedings under Section 111 of the Companies Act, in which the former was at best only a proforma party, it should not have any claim to audience before me, in the Appeal under Section 10F of the said Act.

2. Succinctly stated, the dispute concerns the issue of Bonds by the Appellant of the face value of Rs. 80 crores bearing interest at the rate of 17% per annum. This was achieved through private placement in favor of CANFINA made on or about March 10, 1992. It is averred by CANFINA that because the actual Bond Certificates were not ready on the date of allotment, only Letters of Allotment were issued in favor of CANFINA. On or about 5th May 1992, CANFINA transferred these 'Bonds' to CITIBANK of the face value of Rs. 30 crores along with interest thereon, from the said allotment aggregating Rs. 80 crores. All these events took place between 1.4.91 and 6.6.92 and it is indeed a mystery why a Notification was not made under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992, considering that the avowed objectives of this statute was to cover suchlike transactions. However, equally curious things have been heard to happen. On 6.7.1992, the allotment letters along with the transfer forms duly filled were lodged for transfer by CITIBANK with the Appellant POWERGRID. The grievance of CITIBANK before the CLB is that POWERGRID neither processed the allotment letter nor transferred the Bonds in the name of CITIBANK even till September 1993, when it approached the CLB.

3. On 10.1.1995, CANFINA and CITIBANK executed an Agreement whereby the latter transferred its rights to the former, details of which are given below. Subsequently, by its Orders dated 7.2.1995 the CLB had expressed the opinion that the petition filed by CITIBANK was maintainable under Section 111(4) of the Act. It refrained from discussing the point whether the limit prescribe under Section 111(3) of the Act is mandatory and whether delay is condonable, and fixed the main petition for hearing. It is against this Order that the present Appeal has bene filed. I am fully mindful of the position that the scope of the Appeal does not encompass the entire dispute between the parties. It is not in controversy that POWERGRID had only issued Letters of Allotment and that the Bond Certificates were deliberately not issued. There is some controversy on the point whether any payment was received by POWERGRID from CANFINA. If none was received, prima facie the Letters of Allotment would suffer form the vice of absence of any consideration and would therefore not command legal efficacy. It has however been submitted by Mr. Kaura that CANFINA was to invest Rs. 60 Crores in the then booming share market, and this was the reason for the floating of the 'Bonds'. There is also an averment by CANFINA that Rs. 120 crores was paid by it against the Bonds. Meanwhile anticipating the issuance of the Bond Certificates, CANFINA sold them for the value of Rs. 30 crores to CITIBANK.

4. It was in this sequence of events that CITIBANK invoked Section 111 of the Act and prayed for these reliefs:--

"(a) The Respondent No. 1 be ordered and directed to transfer the bonds stated below in the name of the Petitioner:

Allotment Letter No.

Distinctive no.

Folio No.

No. of Bonds

NPTC/19/90-91

A-1000001 to A-1100000

T 0000012

1,00,000

NPTC/20/90-91

A-1100001 to A-1200000

T 0000012

1,00,000

NPTC/21/90-91

A-1200001 to A-1300000

T 0000012

1,00,000

(b) the respondent No. 1 be ordered and directed to rectify the register of bond holders and delete the name of the Canbank Financial Services Ltd. and insert the name of the Citibank N.A. therein.

(c) the Respondent No. 1 be ordered and directed to pay to the Petitioners interest accrued on the said bonds for the periods stated below and further interest till the hearing and disposal of the Petition:

10-03-1992 to 01.07.1992 -- Rs. 1,57,89,041.00 01.07.1992 to 01.01.1993 -- Rs. 2,55,00,000.00 01.01.1993 to 01.07.1993 -- Rs. 2,55,00,000.00

(d) that the costs of this Petition and the order to be made thereon be provided for;

(e) for such further and other reliefs as the nature and circumstances of the case may require.

8. The Petitioners also seeks the following interim reliefs:

(a) that pending admission and hearing and final disposal of this Petition, that the Respondent No.1 and its Directors, Officers, servants and agents by restrained from in any manner whatsoever disposing of, transferring or encumbering or parting with possession of the said bonds to any person other than the Petitioners."

5. On 20th January, 1994, POWERGRID issued a notice of Forfeiture to CANFINA and thereafter took the threatened action on 11th February, 1994. This act of forfeiture by POWERGRID has not been challenged either by CITIBANK or CANFINA. In the context of the prayers reproduced above, and the pleadings of the parties, the following preliminary issues were framed:--

"(i) Section 111 is applicable only in case of refusal of transfer of shares and debentures of a company. The impugned letters of allotment are neither shares nor debentures and as such same does not fall within the purview of Section 111

(ii) Petition is time barred in terms of Section 111(3) as appeal against refusal has to be made within a period of 4 months from the date of lodgement. The instant application has been filed after a period of one year from the date of lodgment and as such it is belated and cannot also be condoned.

(iii) The petition has become infructuous in as much as the letters of allotment in question have been forfeited in accordance with the articles of association of the respondent company.

(iv) Petitioner has not given/furnished many details like contract note, the name of the broker through whom contract was completed, no consideration has been shown in the transfer deed etc."

6. During the pendency of proceedings before the Company Law Board, CANFINA and CITIBANK entered not the aforementioned Agreement dated 10.1.1995. The salient features are that CANFINA 'with a view to continue good business relationship with CITIBANK have approached the CITIBANK for purchase of the said PGCIL Bonds pending the disposal of the Company Petition filed by CITIBANK (i.e. before the C.L.B.). It had further been agreed between these two parties that "CANFINA with full knowledge of the dispute relating to the transfer of Bonds have purchased right, title and interest in the said Bonds and CITIBANK to not in any way warrant for the title of the said PGCIL Bonds". Clause 6 of the Agreement is of considerable importance since the action contemplated therein has admittedly not been taken by CANFINA, and is reproduced below:

"6. It is hereby agreed that the Company Petition filed by Citibank against PGCIL as described above shall be suitably amended to enable CANFINA to pursue their remedies against PGCIL. It is further agreed that Citibank shall relinquish all their right, title and interest whatsoever in the said Bonds. It is also further agreed that CANFINA shall pursue such legal remedies available to them and also get themselves transposed as Co-petitioners with Citibank and take all responsibility to effectively prosecute the petition. On such amendment CANFINA shall pursue such legal remedies available to them without recourse to Citibank."

7. It will also be of advantage to reproduce paragraphs 4 and 5 of the Affidavit field in this Court on behalf of the 1st Respondent i.e. CITIBANK, for reasons which will be dealt with hereinafter.

"4. I say and submit that, as more particularly stated above, the 1st Respondent's right, title and interest in the said bonds has been purchased by the 2nd Respondent and the 1st Respondent now has no right, title or interest therein. In the circumstances, I say and submit that it is now the 2nd Respondent's responsibility to oppose this appeal, get themselves transposed as the Petitioners/ Co-petitioners in the petition, and take such other steps as they may be advised in connection with the said Bonds. In this behalf, the 1st Respondent has already forwarded to the 2nd Respondent a joint application to be filed by the 2nd Respondent before the Company Law Board. for transposing the 2nd Respondent herein as the Petitioner in the Company Petition before the Company Law Board. However, in view of the stay of proceedings granted by this Hon'ble Court, the 2nd Respondent has not pursued the said joint petition.

5. I further say and submit that in light of the assignment of the 1st Respondent's interest in the said Bonds to the 2nd Respondent, the present appeal may be continued against, and opposed by, the 2nd Respondent herein and this Hon'ble Court may be pleased to give such directions and pas such orders in this behalf as this Hon'ble Court deems fit and proper."

8. Despite the Agreement between CANFINA and CITIBANK CANFINA did not apply for its transposition as a Co-petitioner with CITIBANK in the petition under Section 111 of the Act, or in replacement/substitution of CITIBANK the present Appeal, despite the passage of almost three months till this Court stayed further proceedings before the Company Law Board by its Orders dated 7.4.1995. In the course of arguments, Mr. Kaura sought the leave of this Court to do so now, that is after the passage of over six years and eight months. Obtainment of leave of this Court to file an application either for transposition or for impleadment in a lis is not a precondition or requisite for its filing. I find no justification for granting such leave at this stage especially since it will have the consequence of dislodging rights which have become entrenched with the passage of time.

9. The first contention of Mr. Kaura is that the appellant must approach the CLB with its contention that with the so-called transfer of Bonds by CITIBANK to CANFINA, the lis pending before it no longer subsists. It cannot be overlooked that CITIBANK has transferred all its interests in the Bonds in favor of CANFINA and that the latter was obliged to apply for their transfer. Failure to do so shall have fatal consequences. Two situations can emerge, either that the initial transfer from CANFINA and CITIBANK is effaced and rendered nugatory, or that second transfer from CITIBANK coincidentally to CANFINA validly occurred. In the first situation, once the transaction itself is obliterated, the action under Section 111 must also automatically come to an end. In the second situation, CANFINA ought to have applied for the transfer of the Bonds to its name, which was essential in view of POWERGRID's forfeiture action. It has failed to do so and it barred by principle of limitation from initiating this process after over six years.

10. While keeping in perspective the fact that the present appeal pertains only to a determination on the preliminary issues that had been raised before the CLB, nonetheless, this Court has ample power to consider the objection articulated by Mr. Mukul Rohatgi. It would be a waste of precious public time, and a needless burden on all the parties to the dispute, the first of all recall the interim orders dated 7.4.1995, either fully or to a restricted extent and thereafter refer the parties to the CLB for passing of orders which an quite easily and conveniently be made by this Court as the Appellate Court. This is clearly envisaged by Order XLI Rule 33 of the Code of Civil Procedure, 1908. The applicability of the Civil Procedure Code to proceedings before the Company Court has been specifically mentioned in Sub-rule (4) of Rule 2 and in Rule 6 of the Company Court Rules, 1959. Quite recently in Delhi Electric Supply Undertaking v. Basanti Devi and Anr. , the Hon'ble Supreme Court had followed the legal exposition earlier made in Mahant Dhangir and Anr. v. Madan Mohan and Ors., , as contained in the following passage:

"The sweep of the power under Rule 33 is wide enough to determine any question not only between the appellant and respondent, but also between respondent and co-respondents. The appellate Court could pass any decree or order which ought to have been passed in the circumstances of the case. The appellate Court could also pass such other decree or order as the case may require. The words "as the case may require" used in Rule 33 of Order 41 have been put in wide terms to enable the appellate Court to pass any order or decree to meet the ends of justice. What then should be the constraint? We do not find many. We are not giving any liberal interpretation. The rule itself is liberal enough. The only constraint that we could see, may be these: That the parties before the lower Court should be there before the appellate Court. The question raised must properly arise out of the judgment of the lower Court. If these two requirements are there, the appellate Court could consider any objection against any part of the judgment or decree of the lower Court. It may be urged by any party to the appeal. It is true that the power of the appellate Court under Rule 33 is discretionary. But it is a proper exercise of judicial discretion to determine all questions urged in order to render complete justice between the parties. The Court should not refuse to exercise that discretion on mere technicalities."

11. It will be seen from the above that in the petition before the CLB no relief had been claimed from or directed towards CANFINA. Therefore, it was only a proforma party, and POWERGRID could have taken objection to such joinder. It has been put to Mr. Kaura that since CANFINA was at best only a proforma party, it ought not to have been heard as of right by the Company Law Board, and should not be allowed audience before this Court. In reply thereto Section 146 and Order XXII Rule 10 of the Code of Civil Procedure have been relied upon.

12. As far as the latter provisions is concerned it must at once be noticed that, even assuming that a valid assignment has taken place in favor of CANFINA, the latter ought to have obtained the leave of the Court to continue proceedings in place of CITIBANK. Having failed to obtain the leave of the Court, CANFINA cannot be heard as a necessary and proper party in substitution of the original applicant and as the first respondent in these proceedings. I am mindful of the fact that no limitation for moving an application under Order XXII Rule 10 has been prescribed. The fact remains that even though this question has been considered in some detail, no application has been filed by CANFINA till date. Even though proceedings before the CLB have been stayed, this factor cannot be construed as an embargo even of the filing of such an application. In any event there was no impediment in the way of CANFINA in filing such an application in the present proceedings, but it has not done so. Mr. Kaura has contended that CITIBANK is not barred from opposing the Appeal as it already stands imp leaded as a Respondent. This is true but to a qualified and restricted extent. However, the fact remains that there has been no representation on behalf of CITIBANK, leading inexorably to the conclusion that it has no subsisting interest in this dispute, and must be held to have abandoned or ceased to retain further interest in its claim. By virtue of Order XXIII Rule 1(4), CITIBANK has rendered itself vulnerable to imposition of costs, and is precluded from filing a fresh action. Had the above-mentioned Agreement not been made available to this Court it would have done no more than decide the present Appeal in the absence of CITIBANK. The Court does not pronounce on esoteric legal questions and is bound to take note of forensic realities. Deciding an Appeal when the main contestant has no subsisting interest would be a futile formality.

13. There is yet another obstacle in the way of CANFINA and that is whether or not an assignment in the eyes of law has taken place in terms of the Agreement dated 10.1.1995. As has been mentioned, only Letters of Allotment had bene issued by POWERGRID to CANFINA and according to the former, Bonds were not issued because payment had not been received from the latter. On behalf of POWERGRID it is contended that no payment had been received from CANFINA, whereas the CANFINA has averred that a sum of Rs. 120 Crores had been deposited in the former's Bank Account in the Janpath New Delhi branch of Canara Bank. But it may not be appropriate or necessary to enter upon these controversial questions of fact. However, while Mr. Kaura may be correct in relying on Section 108 of the Companies Act insofar as CITIBANK is concerned, this provisions would not come to the succour of CANFINA as the successor-in-title of CITIBANK. Section 108 was introduced into the statute to check the currency of blank transfer forms. Logically, only CITIBANK (as the transferee) was eligible to claim the registration of the 'Bonds' in its name on the strength of the Letters of Allotment, which cannot be equated with or be held to be synonymous to shares, bonds or debentures which are inherently and per se negotiable. The object and intent of Section 108, the compliance of which has been held to be mandatory in Mannalal Khetan v. Kedar Nath Khetan and Ors., , would be frustrated if Letters of Allotment exchanged between two persons would attain infinite currency and transferability. In my view Section 108 cannot be availed of by CITIBANK, (to whom it was not addressed), in the role of a transferor. CITIBANK has at best merely a 'right to sue', which cannot be transferred under Section 6(c) of the Transfer of Property Act. The protection of this Section would inure only to the benefit of the person to whom the Letter of Allotment is issued, otherwise it would itself attain the attributes of shares, bonds, debentures and be freely transferable. Letters of Allotment are not a negotiable instruments. Accordingly, the absence of CITIBANK in these proceedings assumes great relevance. Ordinarily, the Appellate Court should only decide the questions and issues posed before it. If the Respondent is absent, the Appeal can nonetheless be disposed of. But where the lack of any interest of the affected and contesting party to the litigation can be gathered from any document available to the Court, and where such abandonment is additionally manifested by discontinuance of appearance in the legal proceedings, the Court ought not to pursue a facile approach and avoid and procrastinate putting an end to a forensically dead dispute. Once it is found that CITIBANK had no conveyable interest, CANFINA cannot assume the role of its representative under Section 146 or any other provision of the CPC.

14. Furthermore, the claim of 'CITIBANK' assumes that despite the forfeiture CANFINA enjoyed valid title over the Bonds which it purportedly sold to CITIBANK the transfer of which was refused by POWERGRID. What needs to be cogitated upon is whether CITIBANK could have entered into further transactions in respect of these Bonds, title of which is contingent on CITIBANK succeeding in its action under Section 111 of the Act. It must again be underscored that the rights of CITIBANK are the second link in the chain of transactions i.e. between CANFINA and CITIBANK when the first and preceding link itself i.e. between POWERGRID and CANFINA has been broken and rendered asunder. It is certainly debatable as to whether CANFINA could have transferred/sold Bonds to CITIBANK without having perfected its title to them by legal action. It is the common case that no Bonds whatsoever were issued even to CANFINA, which has neither taken any action under the Companies Act, nor has assailed the forfeiture by POWERGRID on 11.2.1994. What has made the situation worse confounded is that CITIBANK has transferred them further, albeit coincidentally to the very party from whom it had purportedly purchased the Bonds, i.e. CANFINA. At the highest, CITIBANK merely had a right to sue POWERGRID for the registration of Bonds purportedly purchased by it from CANFINA. The impediment in this relief is that no action has been initiated by CANFINA for enforcing its right against POWERGRID in the face of the forfeiture. It may also be noticed that the transfer from CANFINA to CITIBANK and thereafter by return route from CITIBANK to CANFINA may not have been through the vehicle of legally acceptable documents. CITIBANK has attempted to assign rights in favor of CANFINA without the leave of the Court, as is essential under Order XXII Rule 10 of the Code of Civil Procedure. The only possible conclusion is that CITIBANK must be deemed to have abandoned its claim. This Court, even in its appellate jurisdiction, should therefore dismiss the initial and original action itself.

15. Mr. Kaura has relied on Rikhu Dev, Chela Bawa Harjug Dass v. Som Dass (Deceased) through his Chela Shiama Dass, , Thermofriz Insulations Pvt. Ltd. Calcutta v. Vijya Udyog, AIR 1981 Delhi 385, Ghafoor Ahmad Khan v. Bashir Ahmad Khan (Dead) by Lrs., , Smt. Pushpa Kumar and Ors. v. Dewan Chand Trust, New Delhi and Ors., and Baijanti Bai v. Prago and Ors., . In all these cases, however, what has been transferred or assigned is property which is not the subject matter of any controversy as to its transferable nature. A mere right to sue has not been assigned or transferred in any of these cases. None of these proceedings are, therefore, of any relevance.

16. In retrospect, keeping in perspective the conundrums that had to be unravelled in this judgment, it would have been a much easier exercise to simply decide the Appeal itself. I prefer to effect a forensic euthanasia.

17. In this analysis, the submission made by the Additional Solicitor General on behalf of POWERGRID is accepted. This Appeal is disposed of by dismissing the Company Petition 6/111/94-CLB under Section 111 of the Companies Act pending before the CLB. The parties shall bear their respective costs.