VARGHESE K. JOSEPHversusTHE CUSTODIAN & ORS.

                      [i011r2 S.C.R. 269


                   VARGHESE K. JOSEPH                              A
                                v.
                   THE CUSTODIAN & 'ORS.
              (Criminal Appeal No. 948 OF 2006)

                      JANUARY 31, 2011
                                                                   B
  [MARKANDEV KAiJU AND GYAN SUDHA MISRA, JJ,]

     Special Courts (Trial of Offences Relating to
 Transactions in Securities) Act, 1992:
                                                                   c
        Certification of tainted shares by Custodian and its
, release and payment of accruals - Application for - Filed by
  investor before Special Court ..:.. Dismissed on the grourid of
  fifing of the application after the cut off date - Justification of
  - Held: Not Justified - Custodian is justified in filing ari 0
  application before the Special Court requesting to fix a cut off
  date for certifir.ation of the tainted shares - However, the cut
  off date fixed 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, E
  wherein there is no fixed time limit for encashment of shares
  nor there is prescribed procedure for certification - Custodian
  cannot shirk away from his function and the duty cast upon
  him - Special Court is duty bound to guard the interest of the
  bonafide investors through the Custodian - On facts, investor F
  had no role or involvement in treatment of the alleged equity
  shares as tainted which required certification before payment
  of dividend on the same - Investors cannot be denied his due
  on the ground of delay in filing the application for certification
  specially when they sought certification of his shares only after
  two months of the cut off date which had no statutory force - G
  Transaction of Sale of .Securities Act, 1956.

     Application and interpretation of the provisions under the
 1992 Act - Held: s.alu(ary, o~ject and reasons of the Act are
                               269                                 H
    270       SUPREME COURT REPORTS           [2011] 2 S.C.R.


A to be taken into consideration - Different provisions are ·
  required to be ·construed so that each provision wiil have its
  play - In case of conflict, a harmonious construction should
  be adopted so that an honest and bonafide investor is not
  duped of his hard earned money which he invests by
B purchasing the equity shares - Interpretation of statutes

          Object and reasons of the 1992 Act- Explained

         The appellant-investor purchased 100 equity shares
    of the respondent No. 2 Company and made payment
C   through respondent No. 4, the share broker. The
    appellant approached respondent No. 2 Company
    seeking dividend and other benefits on the shares,
    however, the appellant was informed that the shares
    were tainted and thus, his request was rejected. The
D   appellant then filed an application before the Special
    Courts under the provisions of the Special Courts (Trial
    of Offences Relating to Transactions ih Securities) Act,
    1992 seeking certification of the tainted shares by the
    respondent No. 1-Custodian and its release and the
E   payment of accruals. The appellant was informed by the
    office of the Special Court that the application could not
    be entertained since it was filed after the cut off date to
    submit application for certification. The appellant then
    filed an application before the Specia~ Court that he was
F   not aware of any cut off date regarding the filing of the
    application for certification of shares as also the
    procedure for the same. The Special Court dismissed the
    application. Therefore, the appellant filed the instant
    a_ppeal u/s. 1O of the Act
G
          Allowing the appeal, the Court
      HELD: 1.The order of the Special Court is set aside.
  The respondent-Custodian would entertain the
H application filed before the Special Court for certification
          VARGHESE K. JOSEPH v. CUSTODIAN & ORS.                  271

          of the shares and verify the claim of the appellant in         A
      .
          regard
           '-'
                 to the· shares and ensure payment of dividends
        · on those shares after certification by respondent No. 2.
          [Para 26] [290-E-F]                       ·

             2.1 It is admitted by respondent No. 1 - Custodian          8
        himself that the appellant who had purchased the shares
        of respondent No. 2 through respondent No. 4 whose
        affairs were later taken care of by respondent No. 3 also
        and perhaps respondent No. 5, would clearly be deemed
        to be bonafide purchase. However, sin·ce the shares were         c
        held to be tainted by order of the Government of India due
        to which it was not honoured by respondent No. 2, the
        need arose for its certification through the Custodian
        under the control and supervision of the Special Court
        constituted under the Special Courts (Trial of Offences          0
        Relating to Transactions in Securities) Act, 1992.
        Meanwhile, long time had elapsed between the date of
        purchase and the applic ..tion for certification of the
        shares and obviously during this long period it is the
        respondent-Custodian i.n co-ordination with the notified         E
        company and respondent Nos. 3 and 4- share brokers
        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, respondent No.
        1-Custodian encountered several procedural hassles as            F
        the claim of payment
                       i    '1\.,
                                  were made at frequent intervals by
        large ~~~fef'ihvestors holding the shares which were
        infbrfritftJ to be tainted and thus; required certification by
/1•     the Custodian. [Para 20] [285-E-H; 286-A-B]
        "    2.2 Respondent No. 1-Custodian although might G
        have been justified in filing an application 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
                                                                         H
    272    SUPREME COURT REPORTS            [2011] 2 S.C.R.

A 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 share~ nor
  there is prescribed procedure for certification which
B emerged only on account of extra-ordinary situation
  when certain shares were found to be tainted which were
  floated by respondent No. 5 for respondent No. 2 and
  were traded through share brokers like responde11t No.
  3 and 4. [Para 21] [286-C-E]
c      2.3 The salutary object and reasons of the Act also
  would 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
0 play and in the event of any conflict, a harmonious
  construction is required to be made so that an honest
  and bonafide investor is not duped of his hard earned
  money which he invests by purchasing the equity shares
  of a company. The Act of 1992 had been enacted and
E 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 trail of offences relating to
F transaction in securities and for matters connected
  therewith or incidental thereto. The courts specially the
  Special Courts has to. bear in mind the objects and
  reasons of the Act which clearly indicate that in course
G of the investigations by the Reserve Bank of India, large
  scale irregularities and mal practices noticed in
  transactions by both the Government and other
  securities through some brokers in collusion with the
  employees of banks, companies and financial institutions.
H The other irregularities and malpractices led to the
  VARGHESE K. JOSEPH v. CUSTODIAN & ORS.             273

divergence of funds from banks and financial institutions A
to the individual accounts of certain brokers. In order to
deal with the situation and in 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 B
institutions, the Act of 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 custodian~ to tak~ steps for
guarding the interests with a view to .check the diversion C
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 D
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 thus, cut off date might have been
justified, it was also expected to take care and guard the E
interest of the investors who are based and live not
merely within the geographical boundaries of the Special ·
Court which had 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. [Para 22] [286-F-H; F
287-A-H]

    2.4 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 · G
be tain~~d which was issued through respondent No. 5
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 w~s clearly nefarious and dubious activity H
    274      SUPREME COURT REPORTS             [2011) 2 S.C.R.

A on the part of the respondent No. 5 due to which the
  unnecessary hassle of certification of the share,s issued
  in the name of respondent No. 5 became essential. The
  investors like the appellant had absolutely no role in such
  activity and thus, even if the cut off date was fixed by the
B 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 control as it has happened in the case of
C the appellant who could not approach the Special Court
  for certification of his tainted shares for aforestated
  reasons. [Para 22] [286-H; 288-A-D] ,

          2.5 The appellant had filed an application before the
0   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
E   had to be filed by 27.6.2005 although the same Is asserted
    by the Custodian, which cannot be accepted in absence
    of appearance of respondent Nos. 3, 4. But even it if were
    so, the court should have certainly considered the
    circumstance whether a bonafide purchaser of shares
F   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 statue, and thus, had no statutory force. The order
    sought from the Special Court to fix a cut off date for
    receiving application for certification was, thus,based
G   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
H
    VARGHESE K.. JOSEPH v. CUSTODIAN & ORS.              275

   modern tools and technique of internet and many other A
   modern modes and methods. But thereafter, if the shares
, are held to be tainted which is clearly beyond the control
   of the 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 .B
   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 1992
   Act. Thus, the Custodian cannot shirk away from his
   function and the duty cast upon him by limiting his c
   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 shares of the company o
   and later comes to know that the shares were tainted on
   which they have absolutely no role or control.[Para 23]
   (288-E-H; 289-A-E] ·

      2.6 The Special Court clearly had the duty to ensure      E
 that in absence of statutory time limit prescribed for
 certification of sh1ues 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          F.
 bonafide purchased the shares of a notified company
 which for reasons beyond the control of investors, was
 held to be tainted. [Para 24] [288-F-G]

     2. 7 The appellant on the one hand was saddled with
 the tainted shares for no-fault on. his part through           G
·respondent Nos. 4, 5 and 6 1on 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
                                                                H
     276       SUPREME COURT REPORTS               [2011] 2 S.C.R.

A 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 Speciat Court. [Para 25) [290-B-D]

 B       CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
     No. 948 of 2006.

        From the Judgment & Order dated 28.11.2005 of the
    Special Court Constituted Under the Special Court (Trial of
    Offences Relating to Transactions in Securities) Act, 1992 in
· C Misc. Application No. 536 of 2005.

           Pravin Satale, Naresh Kumar for the Appellant.

        Subramonium Prasad, Shyam D. Nandan, Shweta
     Mazumdar, Rajat Khattri for the Respondents.
 D
           The Judgment of the Court was delivered by
        GYAN SUDHA MISRA, J. 1. This appeal has been filed
   under Section 10 of the Special Courts (Trial of Offences
 E 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
 F 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.
 G       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
 H absence of a statutory provision to that effect as also the fact
   VARGHESE K. JOSEPH v. CUSTODIAN & ORS.                    277
           [GYAN SUDHA MISRA, J.]
that the appellant-investor admittedly had no role or involvement   A
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 8
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 C
purchase of the shares had admittedly been 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 D
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        E
 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.    F
 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 certain             G
.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     H
                             I
          278       SUPREME COURT REPORTS               [2011] 2 S.C.R.


      A 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
  8 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
  C application seeking certification of the tainted shares as the
    equity shares in question stood in the name of Mis. 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 this company required certification by the
  0 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
1,· communication nor the said letter indicated anything about the
    cut off date for making application for certification of the tainted
; E 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.

      F       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
      G 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
      H been issued by the respondent No.3 -Karvy Consultants Ltd .
                                       ...
    VARGHESE K. JOSEPH v. CUSTODIAN & ORS.                  279
            [GYAN SUDHA MISRA, J.]       .
that in order to do justice to the bonafide investors, the Special A
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 B
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     c
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
                                                                    0
 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 order from the Special Court along with original share
 certificates and transfer deeds to~nable it to do the needful.
 But the appellant's case is that e never received the said E
 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 F
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 Ud. through respondent No.4 and
so tne appellant could not produce the share certificates. G
Howeve,, 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
respof1dent No. 3 i.e. Karvy Consultants Ltd. ~as unable to
process the share through respondP"+ No.6 - Madras Stock H
I
    280      SUPREME COURT REPORTS                 [2011] 2 S.C.R.


A Exchange as they were i. 1nted. The appellant, therefore, stated
  that he is a bonafide J.'..Hchaser and tile owner of 100 tainted
  shares of respondent No. 2 and the said shares were required
  to be transferred in the name of the appellant along with all the
  accrual till dates after certification. The appellant as already
B stated also iearnt that the tainted sh<1res required certification
  through respondent No.1 - the Custodian and for this purpose
  ha would be required to seek permission from the Special Court
  under the Specia! Courts Act uf 1992.

        8. in view of the aforesaid po~ition, the appellant filed an
C application before the Special Court under the provisions of
  Special Courts Act of 1982 wherein he prayed for certification
  of the shares by the respondent No.1 - Custodiar. and its
  release and payment of accru<1fs but as per the letter from theJ
  office of the Special Court it 1.vas intimated that the last dme to
D submit application for certification was 27.6.2005 an~ hence
  it could not be entertai'led.

        9. The appellant, therefore, f!led an application before the
  Special Court on 27.08.2005 stating that he was not aware of
E any cut off date regarding the filing of the application for
  certification of shares by the Custodian and was also not aware
  of the prc.cedure or the last date of fiiing 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
F certification of the tainted shares within the time fixed by the
  Special Ccurt.
        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
G 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
H application was dismissed by the Special Court against which
  VARGHESE K. JOSEPH v. CUSTODIAN & ORS.                        281
          [GYAN SUDHA MISRA, J.]
this appeal has been filed by the appellant under Section 10            A
of the Special Courts Ac.t 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 -             8
the Custodian based at Mumbai who has filed reply in this
appeal. As per the reply of the Custodian - Respondent No.1
herein, the process of certification was being done on a regular
basis. But on 31.1.2005, the C.ustodian gave a report to the
Special Court that the Custodian/Notified party receives accrual        C
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              D
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             E
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               F
disbursed to them through the Custodian. It has beer. admitted
by the Custodian in his re.ply that the dividends which were
received by the Custodian came automatically from the
company either by way of dividend warrants or through the
Electrv11ically Clearing System (ECS). The Custodian stated             G
that these ljividends were not kept separately from other
moneys of the ......,ncerned 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              H
    282        SUPREME COURT Rf:PORTS                (2011) 2 .S.C.R.


A 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
8 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
C (dividends/sale proceeds of bonus shares) which was not
  separate from other moneys in the attached account. It was,
  therefore, submitted before the Special Court by the Cust"dian
  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 u1at as
D 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
E 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
F 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
G
          applications for certification of such 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
H
  VARGHESE K. JOSEPH v. CUSTODIAN & ORS.                     283
          [GYAN SUDHAMISRA, J.]
                                                                    I
    by the Custodian or.by this Hon'ble Court on the expiry of      A
    such period as the Court may direct under Clause (a).
    (c) That no claims shall lie againstthe Custodian or against
    a notified party for payment of accruals on shares with the
    third party unless such third party has filed his application   8 .
    for certification within the period ~pecified in Clause (b).
    (d) Any other orders/directions as deemed fit by this
    Hon'ble Court in the matter."
     14. The Special Coµrt taking an overall view of the matter     c
granted the requ~st 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- D
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 from the date of notice
and that no claims shall lie against the c'ustodian or against E
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 F
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 G .
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 share.s. A direction was sought to the Custodian and/or H
   284       SUPREME COURT REPORTS               [2011) 2 S.C.R.

A 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 entertained
  since the same had been received after the cut off date of
8 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
C 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
D 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
E 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 certification of the shares held by the
F 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
G 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.
H
    VARGHESE K. JOSEPH v. CUSTODIAN & ORS.                    285
            [GYAN SUDHA MISRA, J.]
        19. While testing the relative strength of the submission A
  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' B
  intermediary purchaser is deemed to be bonafide provided
  such a transaction under 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 c
  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
                                                                      0
  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 E
 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 F
 bonafide purchase. 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 G
 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 H
       286        SUPREME COURT REPORTS·                 [2011) 2 S.C.R.


    A 4 (Karvy Con$ultants 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 ,
I   B 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
    C might have been justified in filing an application 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
    D 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
    E 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
    F 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 investor is not duped of his hard
    G 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
    H securities by regulating the business of deali~g therein as also
   VARGHESE K. JOSEPH v. CUSTODIAN & ORS.                    287
           [GYAN SUDHA MISRA, J.]
certain other matters connected ther~with which also provided A
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 B
the investigations by the Reserve Bank of India, large scale
irregularities and mat 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 c
     I                           •




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 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 ofthe banks and financial institutions, the Special D
Courts (Trial of Offenees Relating to Transactions in Securities)
Act, 1992 was enacted fot 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 E
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 F
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 mighthave been justified, it was also expected to take
care and guard the interest of the investors who are based and G
live not merely within the geographical boundaries of the
Special Court which had 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 H
    288      SUPREME COURT REPORTS                 [2011] 2 S.C.R.


A 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
B 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 Mis. Fair Growth Company became
c 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 control
0
  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.
E      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
F 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
G 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
  f ram the Special Court to fix a cut off date for receiving
H application for certification was, therefore, based merely on the
   VARGHESE K. JOSEPH v. CUSTODIAN & ORS.                     289
           [GYAN SUDHA MISRA, J.]
theory of convenience of the custodian. clearly ignoring its A
ramification on th.e 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 B
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          c
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
                                                                   0
 he could perform the duty of certification, oblivious of its
 consequence and oth_er ramification on the investors which
 include small investors also who put in their hard earned money
 in the shares of the company and later comes to know that the
 shares were tainted on which the investor has absolutely no role
 or control.                                                       E

     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   F
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
compC1ny which for reasons beyond the control of investors,           G
was helt,; 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
                                                                      H
    290        SUPREME COURT REPORTS                 [2011) 2 S.C.R.


 A 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 certification specially when the
   appellant had sought certification of his shares only after two
 B months of the cut off date for reasons beyond his control which_ ..
   cut off date has no statutory effect or legal force. The appe)lant ·.·.
   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
 c 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 fr""'! the
lo 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 a·pplication filed before the Special Court for
E 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 dividends on those
  shares after certification by the respondent No.2. If necessary
F 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
G 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.
    N.J                                               Appeal allowed.