NCLT Orders Cadila Healthcare To Restore Shares Fraudulently Dematerialised From Two Senior Citizens

The National Company Law Tribunal (NCLT) at Ahmedabad has directed Cadila Healthcare Limited, now known as Zydus Lifesciences, to restore the shareholdings of two senior citizens after finding that their shares were fraudulently dematerialised without their consent. The tribunal also ordered the company to pay Rs 2 lakh to each of the two shareholders as costs.

The order was passed by a coram of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma on pleas filed by Satya Saxena and Raj Kishan Saxena under Section 59 of the Companies Act, 2013.

Emphasising the sanctity of original share certificates, the tribunal observed that “mere procedural compliance cannot override the statutory presumption attached to original share certificates.”

The two shareholders were long-standing investors in the company and held 987 physical shares each. They did not have demat accounts and had never applied for dematerialisation. In 2014, however, unknown persons impersonated them, obtained duplicate share certificates. They later dematerialised the shares into unauthorised accounts. The shareholders continued to hold the original physical certificates and discovered the issue only later, when dividends and other shareholder benefits stopped.

Before the tribunal, the two shareholders said the fraud went undetected due to lapses on the part of the company's Registrar and Transfer Agent. They pointed to discrepancies in signatures and photographs on the applications for duplicate certificates and said these should have been noticed during verification. They argued that their deletion from the Register of Members amounted to a continuing wrong.

Cadila Healthcare and its Registrar and Transfer Agent denied negligence. They said standard procedures were followed, including signature verification and issuance of public notices. They also argued that the pleas were barred by limitation, since the dematerialisation took place in 2014.

The tribunal rejected these submissions. It held that issuance of duplicate share certificates requires careful scrutiny and cannot be treated as a routine process.

“A mechanical reliance on specimen signatures, divorced from holistic verification, defeats the very purpose of due diligence. Further, the Respondent No.1 (Cadila) was aware of the fact that the dividends remained unclaimed and should have been careful while processing requests for issue of duplicate share certificates,” the tribunal said.

It also noted that signatures may change over time, particularly in the case of elderly shareholders.

On limitation, the tribunal said dematerialisation is not an automatic process and must be initiated by the shareholder. It held that the continued exclusion of the shareholders' names from the Register of Members constituted a continuing wrong.

“Each day of continued exclusion gives rise to a recurring cause of action, and proceedings for rectification cannot be defeated solely on the ground of lapse of time,” the order said.

The tribunal directed the company to restore the shareholders' names in the Register of Members within 30 days. It also ordered Cadila Healthcare to credit the value of the shares as of the date of dematerialisation or the first sale after dematerialisation, whichever is higher.

The company was further directed to credit all accrued benefits, including dividends, bonus shares, and stock splits, into the shareholders' valid demat accounts.