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Monday, July 22, 2013

A contract for sale of shares is not valid as per sec.13, and 16 of Securities Contracts ( Regulation) Act and as such transfer and registration of shares in the name of purchaser is prohibited and can not be enforced = 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 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, aggrieved by that, approached the Company Law Board, Eastern Region by 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 November, 1998 dismissed the said application inter alia holding that transfer of shares in favour of Bhagwati was against the provisions of Sections 13 and 16 of the Regulation Act and as such, illegal. In the opinion of the Company Law Board Peerless rightly refused registration of transfer. While doing 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.= the appellant pleaded 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.= “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.” - According to the 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 dated 30th of October, 1987 written by Tuhin to Bhagwati, he had stated that the formal agreement had been executed between them on 10th November, 1986 and as per the agreement he is transferring the entire 3530 shares of Peerless purchased from the loan amount and the transfer is in its repayment. However, the agreement dated 21st November, 1994 between Bhagwati and Tuhin which formed part of the compromise decree provides that the sale of shares took place on 30th October, 1987 and in 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 to Rs.8,64,850 to be retained by Tuhin. 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. Once we take this view, the plea of the appellant that it is a spot delivery contract is fit to be rejected. 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.

       published in       http://judis.nic.in/supremecourt/imgst.aspx?filename=40558                                       
  REPORTABLE




                        IN THE SUPREME COURT OF INDIA
                        CIVIL 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, 1998 passed by the Company Law Board, Eastern
         Region Bench at Calcutta in Original 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 known  as  Lodha
         Services Private Limited.
Tuhin Kanti Ghose, hereinafter  referred
         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 19th  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 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.




                 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 equity shares. 
In terms of the  agreement,  an
         application for recording the compromise was filed  in  the  civil
         suit and for passing a decree in  terms  of  the  compromise.  The
         trial court acceded to  the  prayer  of  Bhagwati  and  Tuhin  and
         decreed the suit in terms of the compromise by judgment and decree
         dated 28th November, 1994.
The trial court further  directed  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 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, aggrieved by  that,  approached  the  Company  Law
         Board, Eastern Region by 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 November, 1998 dismissed  the  said  application  inter  alia
         holding that transfer of shares in favour of Bhagwati was  against
         the provisions of Sections 13 and 16 of the Regulation Act and  as
         such, illegal.  In the opinion of the Company Law  Board  Peerless
         rightly refused registration of  transfer.  While  doing  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 after the date on which the sales of  shares
         have taken place, observed that  the  transaction  does  not  come
         within 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 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.”




                 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  are
         erroneous. The Company Judge, negated  both  the  contentions  and
         observed that the  provisions  of  the  Regulation  Act  would  be
         applicable to a public limited Company even though  its  share  is
         not  listed  on  any  recognized  stock  exchange.  Further,   the
         transaction did not 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, 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 aforesaid provisions  one  after
         another. Section 13  of  the  Regulation  Act  makes  contract  in
         notified areas illegal in certain  circumstances,  same  reads  as
         follows:


            “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.”






                 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  come  within  the
         definition of securities  under  the  Regulation  Act  has  to  be
         marketable and for that purpose has necessarily to  be  listed  in
         the Stock Exchange.   Mr.  Gupta  further  points  out  that   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)   and
         in the case of Brooke Bond India Ltd. v. U.B.Ltd and  Ors.  (1994)
         79 Com.Cases 346 (BHC).  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  259  (Cal.)
         which have taken an altogether contrary view. He contends that the
         Bombay decisions are  based  on  sound  reasoning  and  therefore,
         commend our acceptance.


                 Mr.Bhaskar P.Gupta, learned  Senior  Counsel  representing
         respondent No.1 submits that  the  provisions  of  Regulation  Act
         apply to the shares of a public  limited  company  which  are  not
         listed on any stock exchange. According to him, for securities  of
         a public limited company 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
         are  not  listed  in  the  stock   exchange.   In   our   opinion,
         notwithstanding that if  shares  come  within  the  definition  of
         “securities” as defined under Section 2(h)(i)  of  the  Regulation
         Act, the indictments contained in  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 this  Act,  unless  the  context
                       otherwise requires, -


                            x        x        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        x        x”






                 From a plain reading of  the  aforesaid  provision,  it  is
         evident that for shares of a public limited company to come within
         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  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  out  above,
         the  expression  “marketable”  has  been  equated  with  the  word
         saleable. In other words, whatever is capable of 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  is  required  is
         free  transferability.   Subject  to  certain  limited   statutory
         restrictions, the 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
         the statute prohibits or limits transfer of shares to a  specified
         category of people with onerous conditions or restrictions,  right
         of  shareholders  to  transfer  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 of securities and hence, the provisions
         of Regulation Act apply. A Division Bench  of  the  Calcutta  High
         Court in the case of East Indian Produce Ltd. (supra)  relying  on
         its earlier decision in the case of B.K.Holdings (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, therefore, contemplates  a  free  transaction  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 come  within  the  definition  of
         securities.  This would be evident from 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
                       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 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 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.  The Bombay  High
         Court in this case was 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 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.  Canbank  Financial
         Services Ltd. and Another (2010) 6 SCC  178,  wherein  this  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 between listed  securities  and  unlisted  securities.
         Relevant portion of 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……………………………..”






                 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  of  Section  16  of  the
         Regulation Act.
Section 16(1) of the Act  confers  power  on  the
         Central  government  to  prohibit  contracts  in  certain   cases.
         Section 16 reads as follows:


           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 area the  Central  Government
         by notification is competent to declare  that  no  person  in  any
         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.
The Central Government in 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 other than such  spot  delivery
         contract” as is permissible under the Act, the Rules, bye-laws and
         the Regulations of a recognized stock  exchange.
 The  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 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 question  of  applicability  of  Regulation  Act.
         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.


                 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 this  Act,  unless  the  context
                       otherwise requires, -


                            x        x         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
                           securities are dealt with by a depository;


                            x            x           x”


                 According to  the  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 dated 30th of October, 1987  written  by
         Tuhin to Bhagwati, he had stated that  the  formal  agreement  had
         been executed between them on 10th November, 1986 and as  per  the
         agreement he is transferring the entire 3530  shares  of  Peerless
         purchased from  the  loan  amount  and  the  transfer  is  in  its
         repayment.
However,  the  agreement  dated  21st  November,  1994
         between Bhagwati and Tuhin which formed  part  of  the  compromise
         decree provides that  the  sale  of  shares  took  place  on  30th
         October, 1987 and in 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  to
         Rs.8,64,850 to be retained by Tuhin.  
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.  
Once we take this view, the
         plea of the appellant that it is a spot delivery contract  is  fit
         to be rejected.  
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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