Company Law Board further observed that the shares
of a public limited company which are not registered
in the Stock Exchange also come under the purview of
Regulation Act. In this connection, the Company Law
Board observed as follows:
“We, therefore, hold that the
provisions of the SCR Act, 1956,
including
the
provisions
of
Sections 13,16 and 17 of the Act
would be applicable to a public
limited company even though its
shares may not be listed on any
recognized stock exchange.REPORTABLE
IN THE SUPREME COURT OF INDIACIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7445 OF 2004
BHAGWATI DEVELOPERS PVT. LTD.
APPELLANT
VERSUS
PEERLESS GENERAL FINANCE
& INVESTMENT COMPANY LTD AND ANR.
RESPONDENTS
JUDGMENT
CHANDRAMAULI KR. PRASAD,J.
Appellant aggrieved by the judgment and order
dated 30th July, 2003 passed in ACO No.76 of 1999 by
the
Company
Judge,
High
Court
of
Judicature
at
Calcutta affirming the judgment and order dated 25th
November,
Eastern
1998
Region
passed
Bench
by
at
the
Company
Calcutta
Law
in
Board,
Original
Page 1
2
Petition No.15(111)/ERB/1995 is before us with the
leave of the Court.
The
appellant,
Bhagwati
Developers
Private
Limited, hereinafter referred to as ‘Bhagwati’ was
earlier
Tuhin
known
Kanti
as
Lodha
Ghose,
Services
hereinafter
Private
referred
Limited.
to
as
’Tuhin’, Respondent No.2 herein, approached Bhagwati
for a loan of Rs.38,83,000/- for purchasing 3530
equity shares of Respondent No.1, Peerless General
Finance & Investment Company Limited, hereinafter
referred to as ‘Peerless’. As requested, Bhagwati on
25th of July, 1986 advanced a sum of Rs.38,83,000/-
as loan to Tuhin.
Bhagwati and Tuhin later, on 19 th
November, 1986 entered into a formal agreement in
respect of the aforesaid loan and Tuhin assured to
repay the loan on or before 31st December, 1991. On
30th of October, 1987, Tuhin agreed to transfer 3530
shares of Peerless to Bhagwati by way of repayment
of the aforesaid loan. In the light thereof, Tuhin
handed
over
the
original
share scrips
as
also the transfer deeds for doing the needful by
Page 2
3
Bhagwati. Tuhin on 30th October, 1987, wrote that
Bhagwati would be entitled to all the benefits i.e.
dividend, bonus shares etc. in respect of all these
shares. It seems that the transfer deeds were not
properly
filled
in
and
executed
and
accordingly,
Bhagwati on 28th December, 1987 wrote to Tuhin to
put his signature in the fresh transfer deeds and
return them to it. Bhagwati further requested Tuhin
to send it shares and dividends received by him from
Peerless.
During
these
developments,
Peerless
declared bonus shares in the ratio of 1:1 and Tuhin
being the registered shareholder, received further
3530 bonus shares. Tuhin, it appears, did not sign
the
fresh
transfer
deeds
and
retained
the
bonus
shares. Bhagwati by its letter dated 6th of July,
1988 asked Tuhin to furnish fresh transfer deeds in
respect
of
the
total
shares
i.e.7060
shares.
Peerless declared further bonus shares in the year
1991
in
the
ratio
of
1:1
and
Tuhin
being
the
registered shareholder of 7060 shares was further
allotted
7060
bonus
shares.
In
this
way
Tuhin
altogether got 14120 shares.
Page 3
4
When Tuhin did not accede to the request of
Bhagwati
for
transferring
the
entire
shares,
Bhagwati on 29th May, 1991 filed a suit in the Court
of
Civil
Judge
at
Allahabad
and
obtained
an
ad
interim order of injunction restraining Tuhin from
claiming any right, title or interest in respect of
the aforesaid 14120 shares of Peerless. During the
pendency of the suit, Tuhin and Bhagwati settled
their dispute out of Court and executed an agreement
dated 21st November, 1994, according to which Tuhin
acknowledged
to
have
sold
3530
equity
shares
to
Bhagwati on 30th October, 1987 which entitled it to
the bonus shares declared in the years 1987 and 1991
totaling
14120
agreement, an
compromise was
equity
shares.
application
filed
in
In
for
the
terms
of
recording
civil
suit
and
the
the
for
passing a decree in terms of the compromise. The
trial court acceded to the prayer of Bhagwati and
Tuhin
and
compromise
November,
decreed
by
1994.
the
judgment
The
trial
suit in
and decree
court
terms
of the
dated 28th
further
directed
Page 4
5
that
the
compromise
petition
and
the
agreement
between the parties shall also form part of the
decree. According to the compromise decree, it was
agreed that Tuhin shall retain as absolute owner the
dividend on the entire shares up to the accounting
year 1989-90 amounting to Rs.8,64,850/- as part of
consideration for the settlement. In terms of the
compromise decree, Bhagwati has also paid a further
sum of Rs.10 lakh by way of pay order dated 21st
November, 1994.
Armed
with
the
decree,
Bhagwati
on
12th
December, 1994 lodged the transfer deeds in respect
of 14120 shares with Peerless for their transfer.
Peerless, however, did not accede to the prayer of
Bhagwati and by its letter dated 8th February, 1995
refused to register the said shares, inter alia, on
the ground that the said transfer of shares by Tuhin
in
favour
of
Bhagwati
was
in
violation
of
the
provisions of Securities Contracts (Regulation) Act,
1956;
hereinafter
to
be
referred
to
as
‘the
Regulation Act’. According to Peerless, the contract
Page 5
6
for sale of shares was not a spot delivery contract,
signatures of Tuhin differed from the signatures on
the
record
of
Peerless
and
further
the
stamps
affixed on the instruments of transfer had not been
cancelled.
Bhagwati
re-lodged
the
shares
for
transfer on 14th February, 1995 with Peerless but
again Peerless did not register those shares in the
name of Bhagwati.
Bhagwati,
Company
Law
aggrieved
Board,
by
Eastern
that,
approached
Region
by
the
filing
an
application under Section 111 of the Companies Act,
1956 hereinafter to be referred to as ’the Act’ and
the Company Law Board by its judgment and order
dated
25th
application
shares
in
November,
1998
dismissed
the
said
inter alia holding that transfer
favour of Bhagwati was against
of
the
provisions of Sections 13 and 16 of the Regulation
Act and as such, illegal.
Company
Law
registration
Board
of
In the opinion of the
Peerless
transfer.
While
rightly
doing
refused
so,
the
Company Law Board further observed that the shares
of a public limited company which are not registered
in the Stock Exchange also come under the purview of
Regulation Act. In this connection, the Company Law
Board observed as follows:
“We, therefore, hold that the
provisions of the SCR Act, 1956,
including
the
provisions
of
Sections 13,16 and 17 of the Act
would be applicable to a public
limited company even though its
shares may not be listed on any
recognized stock exchange.”
As regards the plea of the appellant that the
sales
of
shares
in
question
is
a
spot
delivery
contract, the Company Law Board taking into account
that consideration for sales of shares having been
paid
much
shares
after
have
transaction
the
taken
does
not
date
on
place,
come
which
the
observed
within
the
sales
that
of
the
expression,
“spot delivery contract” as defined under Section
2(i) of the Regulation Act. While doing so, the
Company Law Board observed as follows:
“It is, therefore, obvious that a
part of the consideration for the sale
of shares passed on much after the date
Page 7
8
on which the sale of shares is alleged
to have taken place on 30.10.87. We are
unable to accept the argument of Mr.
Bose that the payment of Rs.10.00 lacs
was made only to buy peace. We find
that
the
agreement
dated
21.11.94
clearly states that the payment of
Rs.10.00 lacs was made as a part of
consideration for the sale of shares
and we fail to see how it can be
contended to be otherwise.
There is
other
intrinsic
evidence
in
the
agreement dated 21.11.94 which indicate
against the contention of Mr. Bose,
Learned Advocate for the petitioner
that the entire transaction of sale of
shares
was
completed
on
30.10.87.
Clause
2.1
of
the
said
agreement
provides that notwithstanding anything
contained anywhere in the agreement
dated 21.11.94 which indicate against
the contention of Mr. Bose Learned
Advocate for the petitioner that the
entire transaction of sale of shares
was completed on 30.10.87.
Clause 2.1
of the said agreement provides that
notwithstanding
anything
contained
anywhere
in
the
agreement
dated
21.11.94.
It
was
agreed
that
the
respondent no.2 would be entitled to
retain
as
absolute
owner
of
the
dividend on the entire shares
up to
the accounting year 1989-90 amounting
to
Rs.8,64,850/-
as
part
of
consideration for the settlement. It is
difficult to envisage as to how the
respondent no.2 could continue to be
absolute owner of the shares up to
1989-90 if the sale was completed on
30.10.87.”
Page 8
9
Accordingly, the Company Law Board reached the
following conclusion:
“We, therefore, hold that the
contract of sale of shares in
question
does
not
satisfy
the
definition
of
a
spot
delivery
contract
since
part
of
the
consideration passed on much after
the alleged sale of shares on
30.10.87.”
Assailing the aforesaid judgment and order of
the Company Law Board, passed in Original Petition
No.15(111)/ERB/1995,
Bhagwati
preferred
an
appeal
before the High Court, inter alia, contending that
the shares of Peerless, a public limited Company
having
not
been
listed
on
any
recognized
stock
exchange, it will not come within the definition of
‘securities’ under Section 2(h)(i) of the Regulation
Act. Further the transaction between it and Tuhin
was a case of spot delivery contract and therefore,
the view taken by the Company Law Board on both the
counts
both
are
the
erroneous.
contentions
The
Company
and
Judge,
observed
negated
that
the
Page 9
10
provisions of the Regulation Act would be applicable
to a public limited Company even though its share is
not
listed
Further,
on
the
any
recognized
transaction
did
stock
not
exchange.
satisfy
the
definition of a spot delivery contract since part of
consideration passed on 21st November, 1994, when
Bhagwati made payment of Rs.10 lakh to Tuhin much
after the transfer of shares on 30th October, 1987.
To come to the aforesaid conclusion, the High Court
also took into account the fact that in terms of the
compromise
decree
as
part
of
consideration
Tuhin
retained as absolute owner all the dividends on the
entire shares including the bonus shares up to the
accounting year 1989-90. The observation of the High
Court in this connection reads as follows:
“In the abovementioned background
it is necessary, in my view, to
note the findings of fact arrived
at by the Company Law Board. The
Company
Law
Board
found,
as
findings
of
fact,
that
the
provisions
of
the
Securities
Contract
(Regulation)
Act,
1956
would be applicable to a public
limited
company even though it’s
shares might not be listed on any
recognized stock exchange. It was,
Page 10
11
further, held that it was obvious
that the part of consideration for
the sale of shares passed on much
after the date on which the sale of
shares
took
place
on
October
30,1987.
The
payment
of
Rs.10,00,000/-(Rupees
ten
lakh)
only
by
Bhagwati
to
Tuhin
on
November 21, 1994 was
a part of
consideration for the sale of the
said shares and, further it was
agreed between the Bhagwati and
Tuhin that Tuhin would be entitled
to retain as absolute owner of the
dividends on the entire shares
including the bonus shares up to
the accounting year 1989-1990 as
part
of
consideration.
The
transaction did not satisfy the
definition
of
a
spot
delivery
contract
since
part
of
the
consideration passed on much after
the transfer of shares on October
30,1987.
Moreover,
the
shares
transfer
forms
were
all
dated
November 21, 1994, that is, on the
date on which the consideration of
Rs.10,00,000/- (Rupees ten lakh)
only passed from the Bhagwati to
Tuhin. Therefore, the transfer of
shares in question was hit by the
provisions of the sections 13 and
16
of
the
Securities
Contract
(Regulation)
Act,
1956
and,
therefore, was illegal, void and a
nullity”.
Ultimately, the High Court held as follows:
“The
Company
Law
Board
has
considered all the materials placed
before it and, thereafter, arrived
at the findings of fact that the
impugned transactions is hit by the
provisions
of
the
Securities
Contracts (Regulation) Act, 1956
and the guidelines issued by the
Government of India. The Company
Law Board cannot be termed as
perverse in the sense that no
normal
person would have arrived
at. The Company Law Board found, as
findings
of
fact,
that
the
consideration
for
transfer
of
shares
included
Rs.10,00,000/-
(Rupees ten lakh) only paid by
Bhagwati to Tuhin on November 21,
1994.
The
said
findings
is
sustainable
from
the
reasoning
given by the Company Law Board and,
therefore,
cannot
be
interfered
with in this appeal.”
That is how, the appellant is before us with
the leave of the Court.
It is relevant here to state that the Company
Law Board has held that transfer of shares in favour
of Bhagwati is in the teeth of Sections 13 and 16 of
the Regulation Act and hence, we deem it expedient
to
refer
to
the
another. Section
contract in
aforesaid
13
of
notified
provisions one after
the Regulation Act makes
areas illegal
in
certain
circumstances, same reads as follows:
Page 12
13
“13. Contracts in notified areas
illegal in certain circumstances.-
If
the
Central
Government
is
satisfied, having regard to the
nature
or
the
volume
of
transactions in securities in any
State or States or area, that it
is necessary so to do, it may, by
notification
in
the
Official
Gazette, declare this section to
apply to such State or States or
area and thereupon every contract
in such State or States or area,
which is entered into after the
date of the notification otherwise
than
between
members
of
a
recognized
stock
exchange
or
recognized stock exchanges in such
State or States or area or through
or with such member shall be
illegal:
Provided that any contract entered
into between members of two or
more recognized stock exchanges in
such State or States or area,
shall-
(i) be subject to such terms and
conditions
as
may
be
stipulated by the respective
stock exchanges with prior
approval of Securities and
Exchange Board of India;
(ii) require
prior
permission
from the respective stock
exchanges if so stipulated
by the stock exchanges with
prior approval of Securities
and
Exchange
Board
of
India.”
Page 13
14
From
a
plain
reading
of
the
aforesaid
provision, it is evident that contract in relation
to securities in notified areas is illegal if made
otherwise than between the members of recognized
stock
exchange.
It
is
not
in
dispute
that
the
place where the contract for sale of shares in
question has been entered is a notified area for
the purpose of Section 13 of the Regulation Act.
Further, the contract is not between the members
of a recognized stock exchange.
In order to overcome this difficulty, Mr.
Sunil Gupta, learned Senior Counsel appearing on
behalf of the appellant submits that the security
in question is not marketable and therefore, does
not come within the definition of “securities” as
defined under Section 2(h)(i) of the Regulation
Act. According to him, shares of a public limited
company
to
securities
come
under
within
the
the
Regulation
definition
Act
has
to
of
be
marketable and for that purpose has necessarily to
Page 14
15
be
listed
in
the
Stock
further points out that
Exchange.
Mr.
Gupta
the aforesaid submission
finds support from the judgment of the Bombay High
Court in the case of Dahiben Umedbhai Patel and
others v. Norman James Hamilton and Ors. (1985) 57
Com. Cases 700(BHC)
Bond
India
Ltd.
v.
Com.Cases 346 (BHC).
and in the case of Brooke
U.B.Ltd
and
Ors.
(1994)
79
In fairness to him, he has
drawn our attention to the decision of Calcutta
High Court in the case of B.K.Holdings (P) Ltd. v.
Prem Chand Jute Mills & Ors. (1983) 53 Com.Cases
367
(Cal.) and in the case of East Indian Produce
Ltd. v. Naresh Acharya Bhaduri & Ors. (1988) 64
Com.
Cases
altogether
259
(Cal.)
contrary
which
view.
He
have
contends
taken an
that the
Bombay decisions are based on sound reasoning and
therefore, commend our acceptance.
Mr.Bhaskar
representing
P.Gupta,
respondent
learned
No.1
Senior
submits
Counsel
that
the
provisions of Regulation Act apply to the shares
of a public limited company which are not listed
Page 15
16
on
any
stock
securities
exchange. According
a limited
of
public
to
him,
company
for
to
be
marketable, it does not necessarily require to be
sold
in
any
market
of
a
specified
nature
i.e.
stock exchange. He submits that it may be any area
where buyers and sellers are in contact with one
another and there securities can be sold.
In view of the rival submissions, the first
question which falls for our determination is as
to whether the provisions of Regulation Act will
apply to the shares of a public limited company
which
are
admittedly
not
listed
on
any
stock
exchange?
Admittedly, the shares of Peerless, a public
limited company in respect of which the appellant
had
sought rectification
stock
that
exchange.
if
shares
In
our
come
are not
opinion,
within
the
listed in
the
notwithstanding
definition
of
“securities” as defined under Section 2(h)(i) of
the Regulation Act, the indictments contained in
Page 16
17
Section 13 would apply. The word, ‘securities’ has
been
defined
under
Section
2(h)(i)
of
the
Regulation Act which reads as follows:
“2. Definitions – In
unless
the
context
requires, -
x
x
this Act,
otherwise
x
“(h) “securities” include-
(i)
shares,
scrips,
stocks,
bonds,
debentures,
debenture
stock
or
other
marketable
securities of a like nature in
or of any incorporated company
or other body corporate;”
x
From
provision,
public
x
a plain
it is
limited
x”
reading
evident
company
of
that
to
the
for
come
aforesaid
shares
within
of
a
the
definition of securities they have to satisfy that
they are marketable. The word, ‘marketable’ has
not been defined in the Regulation Act and hence
to
understand
it,
we
have
to
revert
to
its
dictionary meaning. Black’s Law Dictionary (Sixth
Page 17
18
Edition)
explains
the
word,
‘marketable’
as
follows:
“Marketable. Saleable. Such things
as may be sold in the market;
those for which a buyer may be
found; merchantable.”
The compact edition of the Oxford English
Dictionary, Vol.I p.1728 gives the meaning of the
expression “marketable” as follows:
“1. Capable of being marketed that
may or can be bought or sold;
suitable for the market; that
finds a ready market; that is in
demand, saleable.
2. Of or pertaining to buying or
selling; concerned with trade; of
price, value, that may be obtained
in buying or selling.”
As is evident from the dictionary meaning
set
been
out
above,
equated
words,
the
with
whatever is
expression
the
word
“marketable”
saleable.
capable of
In
has
other
being bought
and
sold in a market is marketable.
The size of the
market is of no consequence. In other words, the
number of persons willing to purchase such shares
would not be decisive.
One cannot lose sight of
the fact that there may not be any purchaser even
for the listed shares.
In such a case can it be
said that even listed shares are not marketable?
In
our
opinion
what
transferability.
statutory
is
Subject
restrictions,
required
to
the
is
certain
free
limited
shareholders
possess
the right to transfer their shares, when and to
whom
they
desire.
It
is
this
right
which
satisfies the requirement of free transferability.
However, when
transfer of
people
right
with
of
the
shares
onerous
statute
to
a
prohibits
specified
conditions
shareholders
to
or
transfer
or
limits
category
of
restrictions,
or
the
free
transferability is jeopardized and in that case
those shares with these limitations cannot be said
to
be
marketable.
In
our
opinion,
therefore,
shares of public limited company though not listed
in the stock exchange come within the definition
Page 19
20
of
securities
Regulation
and
Act
hence,
apply.
A
the
provisions
Division
Bench
of
of
the
Calcutta High Court in the case of East Indian
Produce
decision
Ltd.
in
(supra)
the
case
relying
of
on
its
B.K.Holdings
earlier
(P)
Ltd.
(supra) came to the same conclusion and held as
follows:
“In
my
view
to
accept
the
contention of Mr. Dipankar Gupta
on this aspect of the case would
be to ascribe too narrow a meaning
to
the
expression
“marketable
securities”. As will be evident
from the dictionary meaning set
out
above
the
expression
“marketable” has been equated with
“saleable”.
In
other
words,
whatever
is
capable
of
being
bought and sold in a market is
marketable.
I
see
no
warrant
whatsoever
for
limiting
the
expression “marketable securities”
only to those securities which are
quoted in the stock exchange.
This
argument
of
Mr.
Gupta,
therefore, fails.”
True it is that the Bombay High Court in the
case of Dahiben Umedbhai Patel (supra) has taken a
view that the shares of a private company does not
possess the character of liquidity and, therefore,
cannot be said to be marketable.
Relevant portion
of the judgment reads as follows:
“It is thus clear that the shares
of a private company do not
possess
the
character
of
liquidity, which means that the
purchaser of shares cannot be
guaranteed
that
he
will
be
registered as a member of the
company.
Such shares cannot be
sold in the market or, in other
words, they cannot be said to be
marketable and cannot, therefore,
be
said
to
fall
within
the
definition of “securities” as a
“marketable security....”
We must at the outset state that this case
relates to a private company and having regard
to the absence of free transferability, shares
were held not to be marketable securities as
defined under Section 2(h)(i) of the Regulation
Act.
This would be evident from the following
passage of the said judgment:
“...A
market,
contemplates a free
therefore,
transaction
Page 21
22
where shares can be sold and
purchased without any restriction
as to title. The shares which are
sold in a market must, therefore,
have a high degree of liquidity by
virtue of their character of free
transferability.
Such character
of free transferability is to be
found only in the shares of a
public company. The definition of
a “private company” in S. 3 of the
Companies Act, 1956, speaks of the
restrictions
for
which
the
articles of the private company
must provide.
x
x
x
The restriction with regard to the
transfer of the shares is a
characteristic
of
a
private
company....”
In the present case, we are concerned with a
public limited company and the aforesaid judgment
clearly indicates that shares of a public limited
company
will
securities.
come
This
within
would
the
be
definition
evident
from
of
the
following passage from the said judgment:
“It is thus clear to us that the
definition of “securities” will
only take in shares of a public
limited
company
notwithstanding
the
use
of
the
words
“any
Page 22
23
incorporated company or other body
corporate” in the definition.”
For all these reasons, we are of the opinion
that
the aforesaid
decision of
the Bombay
High
Court is clearly distinguishable.
As stated earlier, a learned Single Judge of
the Bombay High Court in the case of Brooke Bond
India
Ltd.
(supra)
had
followed
its
earlier
Division Bench judgment in Dahiben Umedbhai Patel
(supra)
and
expressed
a
prima
facie
view
that
transaction of shares of a public limited company
unlisted on the stock exchange is not intended to
be covered under the Regulation Act.
While doing
so, the learned Single Judge had referred to the
decisions of the Calcutta High Court in the case
of B.K. Holdings (supra) and East Indian Produce
Ltd.(supra) but disagreed with the ratio of those
judgments
without
assigning
any
reason.
The
learned Single Judge found himself bound to follow
the earlier Division Bench judgment in the case of
Dahiben Umedbhai Patel (supra).
The observation
Page 23
24
of
the learned
Single Judge
in this
connection
reads as follows:
“On the contrary, my prima facie
view
of
these
two
judgments
accords with the submission of Mr.
Mehta. I am of the prima facie
view that a transaction of shares
of
a
public
limited
company,
unlisted on the stock exchange, is
not intended to be governed by
this Act.
Mr. Cooper strongly relied on the
judgment of the Division Bench of
the Calcutta High Court in East
Indian Produce Ltd. (1988) 64
Comp. Cas 259 on this issue also.
The Calcutta High Court relied on
an earlier judgment of the same
High Court in B.K. Holdings (P)
Ltd. v. Prem Chand Jute Mills
(1983) 53 Comp Cas 367.
At that
stage,
the
judgment
of
Mrs.
Manohar J. was cited before the
learned
single
judge
of
the
Calcutta High Court. He seemed to
take the view that the decision of
Mrs. Manohar J. in Norman J.
Hamilton v. Umedbhai S. Patel
(1979) 49 Comp Cas 1, must be
confined
to
a
situation
of
transfer of shares of a private
limited company.
So far as the
decision of the Division Bench of
the Calcutta High Court in East
Indian Produce Ltd. (1988) 64 Comp
Cas 259 is concerned, it seems to
follow the earlier judgment in
B.K. Holdings. With great respect
to the learned Judges of the
Page 24
25
Calcutta High Court, who decided
the aforesaid two cases, even if
the matter were not res integra, I
would be inclined to disagree with
their observations made therein.
However, in the view I have taken
of the judgments of the learned
single
judge
and
the
appeal
judgment of our court, I consider
myself bound to take the view that
the
Securities
Contracts
(Regulation) Act, 1956, is not
intended
to
regulate
private
transactions in shares of public
limited companies, not listed on
the
stock
exchange.
This
contention
also,
therefore,
fails.”
The Regulation Act was enacted to prevent
“undesirable
transaction
in
securities
by
regulating business of dealing therein” and from
that one cannot infer that it was to apply only to
the transfer of shares on the stock exchange.
Bombay
High
Court
in
this
case
was
The
greatly
influenced by the fact that the Act was intended
to govern transactions in the stock exchange.
As
stated earlier, we do not find anything in the
object of the Act to warrant that conclusion.
We,
for the reasons stated above, are not inclined to
Page 25
26
endorse
the
view
of
the
Bombay
High
Court
in
Brooke Bond India Ltd.(supra).
We are fortified in our view from a judgment
of this Court in the case of Naresh K. Aggarwala &
Co.
vs.
Another
Canbank
(2010)
6
Financial Services
SCC wherein
178,
Ltd.
this
and
Court
considered the term “securities” as defined under
Section
2(h)(i)
of
the
Regulation
Act,
with
reference to the notification issued under Section
16(2) and held that the definition does not make
any
distinction
unlisted
between
securities.
listed
Relevant
securities
portion
of
and
the
judgment reads as follows:
“41........A
perusal
of
the
abovequoted definition shows that
it does not make any distinction
between
listed
securities
and
unlisted securities and therefore
it is clear that the circular will
apply to the securities which are
not
listed
on
the
stock
exchange...................................”
Page 26
27
When the word ‘Securities’ has been defined
under the Regulation Act, its meaning would not
vary when the same word is used at more than one
place
in
the
same
Statute,
otherwise
it
will
defeat the very object of the definition Section.
Accordingly, our answer to the first question set
out
earlier
is
that
the
provisions
of
the
Regulation Act would cover unlisted Securities of
Public Limited Company.
In other words, shares of
Public Limited Company not listed in the stock-
exchange
is
covered
within
the
ambit
of
Regulation Act.
As stated in the preceding paragraph of the
judgment,
the
Company
Law
Board
has
held
that
transfer of shares in favour of Bhagwati was also
against
the
provisions
Regulation Act.
power
on
the
of
Section
16
of
the
Section 16(1) of the Act confers
Central
government
contracts in certain cases.
to
prohibit
Section 16 reads as
follows:
Page 27
28
“16. Power to prohibit contracts
in certain cases.-
(1) If the
Central Government is of opinion
that it is necessary to prevent
undesirable
speculation
in
specified securities in any State
or area, it may, by notification
in the Official Gazette, declare
that no person in the State or
area specified in the notification
shall, save with the permission of
the Central Government, enter into
any contract for the sale or
purchase of any security specified
in the notification except to the
extent and in the manner, if any,
specified therein.
(2) All contracts in contravention
of the provisions of sub-section
(1) entered into after the date of
the notification issued thereunder
shall be illegal.”
From
a
plain
reading
of
the
aforesaid
provision it is evident that in order to prevent
undesirable stipulation in specified securities in
any
State
or
notification
person
in
is
any
area
the
Central
competent
State
or
to
area
Government
declare
specified
that
in
by
no
the
notification shall, save with the permission of
the Central Government, enter into any contract
for the sale or purchase of any security specified
in the notification.
The Central Government in
Page 28
29
exercise
of
the
aforesaid
power
issued
notification dated 27th of June, 1969 and declared
that in the whole of India “no person” shall “save
with
the
permission
of
the
Central
Government
enter into any contract for the sale or purchase
of
securities
contract”
Rules,
other
as is
such
spot
permissible under
bye-laws
recognized
than
stock
and
the
exchange.
delivery
the Act,
Regulations
The
of
the
a
appellant,
therefore, can come out of the rigors of Section
16 of the Act only when it satisfies that the
transaction comes within the definition of “spot
delivery contract”.
Mr. Sunil Gupta, further submits that the
contract in question is a spot delivery contract
and, therefore, does not come within the mischief
of Section 16 of the Regulation Act.
Mr. Bhaskar
P. Gupta, joins issue and submits that in view of
the limited rule the appellant cannot be allowed
to raise the point of spot delivery contract.
In
this connection, he has drawn our attention to the
Page 29
30
order dated 19th of December, 2003.
We are not
inclined to sustain this objection of Counsel for
the respondent.
By the aforesaid order while issuing rule
this Court noted the submission advanced on behalf
of
the
appellant
in
regard
to
the
conflicting
decisions of the Bombay and Calcutta High Courts
in
regard
to
the
Regulation Act.
question
of
applicability
of
From the aforesaid it cannot be
said that the limited rule was issued.
Further,
by order dated 5.11.2004 leave has been granted by
this Court and it has not been confined to any
specific question.
From the aforesaid it cannot
be said that the appellant has got a limited rule.
On merit, the respondents submit that the
contract in question cannot be said to be a spot
delivery
contract
and,
in
this
connection,
the
learned Senior Counsel draws our attention to the
terms
of
agreement
which
formed
part
of
the
decree.
Page 30
31
The second question, therefore, which falls
for
our
determination
is
as
to
whether
the
contract in question is a spot delivery contract.
This expression is defined under Section 2(i) of
the Regulation Act.
It reads as follows:
“2. Definitions – In
unless
the
context
requires, -
x
x
this Act,
otherwise
x
(i) “spot delivery contract” means
a contract which provides for –
(a)
actual
delivery
of
securities and the payment of a
price therefor either on the
same day as the date of the
contract or on the next day,
the actual periods taken for
the despatch of the securities
or the remittance of money
therefor through the post being
excluded from the computation
of the period aforesaid if the
parties to the contract do not
reside in the same town or
locality;
(b) transfer of the securities
by the depository from the
account of a beneficial owner
to
the
account
of
another
beneficial
owner
when
such
Page 31
32
securities are dealt with by a
depository;
x
x
According
to
the
x”
definition,
a
contract
providing for actual delivery of securities and
the payment of price thereof either on the same
day as the date of contract or on the next day
means a spot delivery contract.
When we consider
the facts of the present case bearing in mind the
definition aforesaid, we find that the contract in
question is not a spot delivery contract. True it
is
that
by
letter
30th
dated
of
October,
1987
written by Tuhin to Bhagwati, he had stated that
the
them
formal
on
agreement
agreement
10th
he
had
November,
is
been
executed
between
1986 and as
per
transferring the entire
the
3530
shares of Peerless purchased from the loan amount
and the transfer is in its repayment.
the
agreement
Bhagwati
and
dated 21st
Tuhin which
November,
formed
However,
1994 between
part of
the
compromise decree provides that the sale of shares
took
place
on
30th
October,
1987
and
in
Page 32
33
consideration thereof Bhagwati paid a sum of Rs.
10 lakhs on 21st November, 1994 and further the
dividend on the entire shares up to the accounting
year
1989-90
amounting
retained by Tuhin.
to
Rs.8,64,850
to
be
In the face of it, the plea of
Bhagwati that the payment of Rs. 10 lakh was made
to buy peace, is not fit to be accepted and, in
fact, that forms part of the consideration for the
sale of shares.
of
the
Once we take this view, the plea
appellant
that
it
is
contract is fit to be rejected.
a
spot
delivery
We agree with the
reasoning and conclusion of the Company Law Board
and the High Court on this issue.
Both the contentions of the appellant having
no substance, we do not find any merit in this
appeal and it is dismissed accordingly but without
any order as to costs.
........................................................................J.
(CHANDRAMAULI KR. PRASAD)
...........................................................J.
(V.GOPALA GOWDA)
NEW DELHI,
JULY 15, 2013.
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