1994 (8) TMI 182 - Commission - Companies Law

Summary

Issues Involved:
1. Whether debentures can be considered as 'goods' within the meaning of section 2(e) of the MRTP Act before they are allotted to the debenture holder.
2. Whether any trade practice is involved when a company invites applications for the allotment of debentures for raising capital.
3. Whether the company provides any service to prospective investors by issuing debentures and inviting applications within the meaning of section 2(r) of the MRTP Act.

Detailed Analysis:

Issue 1: Debentures as 'Goods' Before Allotment
The Commission examined whether debentures are 'goods' under section 2(e) of the MRTP Act before they are allotted. It was argued that debentures, until allotted, are merely instruments of debt and not movable property. The definition of 'goods' under section 2(7) of the Sale of Goods Act, 1930, excludes actionable claims and money. Debentures, unless secured by a mortgage, are considered actionable claims and thus not 'goods'. The Commission concluded that debentures are not 'goods' before allotment, even if they are convertible into equity shares.

Issue 2: Trade Practice Involved in Issuing Debentures
The Commission analyzed whether inviting applications for debenture allotment constitutes a 'trade practice'. It was held that issuing debentures is a mode of raising capital and not a trade practice. The Full Bench in T.T.K. Pharma Ltd.'s case had similarly concluded that issuing shares or debentures does not constitute a trade practice. The Supreme Court in Morgan Stanley Mutual Fund v. Kartick Dass reinforced this view, stating that raising capital through public issues is not a trade practice.

Issue 3: Provision of Service to Prospective Investors
The Commission considered whether issuing debentures and inviting applications constitutes providing a service under section 2(r) of the MRTP Act. It was concluded that merely inviting the public to subscribe to debentures does not involve providing any service. The Supreme Court in Morgan Stanley Mutual Fund's case also held that a prospective investor does not hire the services of the company for consideration at the stage of application for allotment.

Conclusion:
1. Debentures before allotment are not 'goods' within the meaning of section 2(e) of the MRTP Act, regardless of whether they are convertible.
2. No 'trade' or 'trade practice' is involved when a company invites applications for debenture allotment to raise capital.
3. Issuing debentures and inviting applications does not constitute providing a service to prospective investors within the meaning of section 2(r) of the MRTP Act.

The Commission dismissed the enquiries and compensation applications, ruling that it lacked jurisdiction over the subject matters. There was no order as to costs. The Commission appreciated the valuable assistance provided by the senior counsel and other representatives involved in the case.