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.
-----------------------
36
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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