Demat Share Transfers despite injunction – Liability of CDSL
The proceedings arise out of the Awards from the BSE Arbitration Panel under the Arbitration Act, 1940, execution of the decree, injunction order and transfer of shares in breach of injunction order.
By the order dated 6.5.2005, injunction order was passed from transferring, alienating the shares in accounts. However, the shares in the Demat Account of ABG Securities were transferred.
On 20.9.2007, the private Receiver informed CDSL that an injunction order has been passed against Ashok Bimal Ghosh and ABG Securities and the shares from their accounts were transferred in breach of inunction.
CDSL replied that it was not party to the proceedings and no order was passed against it to freeze the Demat account.
By the order dated 9.1.2019, the learned Single Judge as Executing Court passed order directing the appellants including CDSL to pay Rs.1,79,62,131.56/- representing value of transferred shares from the Demat Account of ABG Securities.
HELD that the execution proceedings of a decree made under Section 17 of the Arbitration Act, 1940, are traceable to Section 47 read with Order XXI of the CPC. They are not the proceedings under AA of 1940. Any order passed in such execution proceedings is an order under CPC. Section 39 of the AA 1940 would not be applicable to such an order. Hence, it is a final order appealable under the Letters Patent Act.
The learned Single Judge invoked Section 151 inherent powers treating CDSL as party acting in breach of the injunction. The liability of a third party or stranger violating injunction can be held responsible if such third party has knowledge of injunction.
CDSL sits at the tope of pyramid comprising of 16 crore plus Demat accounts through 581 Depository Participants. It is difficult to believe that CDSL had any intention / motive to breach injunction. However, there was no finding that CDSL has aided or abetted the judgment debtors for breach of injunction. Mere at of negligence of a third party in frustrating decree execution is not enough to hold a third party responsible for restoration of status quo ante.
HELD that the CDSL was not a party to the arbitral proceedings and also execution proceedings of the decree passed under the Arbitration Act, 1940. CDSL was impleaded in the chamber summons for the first time in 2019.
