LAW FOR ALL

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.