In a significant decision, justice Variava has directed the Delhi and Uttar Pradesh stock exchanges to carry on the certification of tainted shares without the mandatory Form III.

It is learnt that the Calcutta Stock Exchange may take a cue from this order, and complete certification of shares worth crores of rupees that are currently the property of the custodian, as Pallav Sheth has reportedly expressed his inability to provide details for verification of Form III (approximately around 200) lying with the Bombay Stock Exchange. An idea of the value of shares that could be released if the CSE approaches the special court can be had from the fact that Pallav Sheth had sold over 50,000 shares of Reliance and about 10,000 shares each of ITC andIndian Rayon.

Of this, a sizable chunk of Reliance was bought on behalf of a financial institution. If one were to include the bonus shares that accrued on all these shares, the value would multiply manifold.

Justice Variava passed the order on March 17 this year on an application by the DSE and the UP Stock Exchange moved in his court in August 1997. The petitioners had prayed for a direction from the special court authorising them to undertake the certification process in the absence of Form III.Besides, they had sought release of shares issued by the petitioners from the "ambit of attachment" under the Special Court Act.

The applicants contended in their application that the "claimants who have purchased shares bona fide, in good faith and for valuable consideration and without any notice of defect in title or want of authority on the part of their transferors [read: FFSL shares sold by Pallav Sheth] ought to be allowed to exercise their rights of legal and beneficial ownership over their shareswithout undue delay and without such claimants being put to unnecessary expense and trouble."

The applicants further argued: "The title of such bona fide purchasers for value without notice would depend upon whether they have themselves paid the consideration for the shares acquired by them and the vesting of good title in them would not depend upon, whether or not, in any earlier transactions relating to those shares, considerations have been paid or have not been paid to an earlier transferor."

In his affidavit to the special court on March 16 this year, Pallav Sheth admitted that the shares of Reliance Industries introduced in the market by him were accounted for in the decree of the Special Court dated February 24, 1994, directing him to pay Rs 51.49 crore to FFSL (a notified party).

As such, he pointed out, "it may be deemed that FFSL has received consideration for the shares (Reliance)" which was the subject matter of the petition filed by the Delhi and UP stock exchanges.

More significantly, itis learnt, that the CSE board could approach the Special Court on the lines adopted by the DSE to seek clearance of a huge chunk of shares delivered by Pallav Sheth in Calcutta, the certification of which has been stalled because of the dispute between Pallav Sheth and FFSL.On February 20, 1996, Pallav Sheth had filed a suit in the special court, seeking the setting aside of its February 24, 1994, decree. He had said he is unable to sign Form III till the disposal of the 1996 suit.