Shareholder Fraud and Corporate Responsibility: Supreme Court Restores Victim’s Equity Shares

The case of Adesh Kaur v. Eicher Motors Limited & Others is a crucial ruling by the Supreme Court addressing the fraudulent transfer of shares due to identity impersonation. The Court ruled in favor of the appellant, restoring her shares and holding the respondent company accountable for failing to follow due diligence in the issuance of duplicate share certificates.

Background of the Case

The appellant, Adesh Kaur, was a resident of Punjab who had acquired 903 equity shares in Eicher Motors Limited in 1994-95. However, in 2012, an imposter, also named Adesh Kaur and residing in Mumbai, fraudulently changed the address on record to Mumbai and requested the issuance of duplicate share certificates. This impersonation was facilitated by respondent no. 2 (the share transfer agent), who failed to follow standard verification procedures.

The impersonator then executed a forged indemnity bond, obtained duplicate certificates, and transferred the shares to respondent no. 8, a person named Vikas Tara Singh. When the original shareholder, the appellant, discovered the fraud in 2014, she immediately requested the company to revalidate and issue fresh share certificates. However, her requests were ignored, prompting her to file a company petition in 2015.

Arguments by the Parties

Appellant’s Arguments

• The company and its transfer agent failed in their due diligence while issuing duplicate share certificates.
• The fraud was committed due to the negligence of the company, and she should not be required to file a separate civil suit to reclaim her shares.
• The National Company Law Tribunal (NCLT) had rightfully ruled in her favor, and the National Company Law Appellate Tribunal (NCLAT) erred in setting aside the order.
• The fraud was evident, and there was no need to await the outcome of the criminal investigation before rectifying the share register.

Respondents’ Arguments

• The company claimed that they were not responsible for the fraud as it was committed by an external party.
• Since a criminal complaint was already pending, the company could not act until its resolution.
• The appellant should approach a civil court rather than the company law tribunal for redressal.
• As the shares were dematerialized, any rectification should be handled by the concerned depository and not the company.

Supreme Court’s Observations

The Supreme Court analyzed the case in light of corporate responsibility and investor protection, making the following observations:

• The company and its transfer agent were directly responsible for the fraudulent issuance of duplicate shares.
• Standard verification procedures, including notifying the stock exchange and issuing a public notice in a newspaper, were not followed.
• Respondent no. 8, who had illegally acquired the shares, did not contest the case, strengthening the appellant’s claim.
• There was no need to file a separate civil suit, as the company law tribunal had the authority to rectify the share register.

Final Judgment

The Supreme Court set aside the NCLAT’s order and restored the ruling of the NCLT, directing the following:

• The company must rectify its share register to reinstate the appellant’s 903 shares.
• The concerned depository must update its records to restore the appellant’s dematerialized shares.
• If respondent no. 8 had already been recorded as the owner, his name must be deleted as the transfer was fraudulent.

This ruling strengthens investor protection and reinforces corporate accountability, ensuring that companies and their agents must exercise due diligence in share transfers to prevent fraudulent activities.

Petitioner Name: Adesh Kaur.
Respondent Name: Eicher Motors Limited & Others.
Judgment By: Justice R.F. Nariman, Justice Indu Malhotra.
Place Of Incident: Punjab & Mumbai.
Judgment Date: 03-07-2018.

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Download Judgment: Adesh Kaur vs Eicher Motors Limite Supreme Court of India Judgment Dated 03-07-2018.pdf