1955 (8) TMI 44 - HC - Companies Law

Summary

Issues:
Validity of contract under Bombay Securities Contracts Control Act, 1925

Analysis:
The appeal raised a question regarding the legality of a contract dated 19-3-1948, under the Bombay Securities Contracts Control Act, Act 8 of 1925. The defendant contended that the contract was void under the Act, leading to the dismissal of the suit by the learned Judge. The contract involved the defendant undertaking to sell 1000 ordinary shares of a bank for the plaintiff at a specified price within 12 months from a particular event. The plaintiff filed suit for damages when the defendant failed to sell the shares within the stipulated time.

The critical issue revolved around whether the contract fell under the definition of a ready delivery contract as per the Bombay Securities Contracts Control Act, 1925. The Act defines a ready delivery contract as one where no time is specified for performance, and it is to be executed immediately or within a reasonable time. The plaintiff argued that the contract in question was a ready delivery contract, while the defendant contended otherwise, claiming that the contract did not meet the Act's definition, rendering it void under Section 6 of the Act.

The Court analyzed the contract's terms and the nature of the obligations involved. It was observed that the contract did not impose a present obligation on the defendant to purchase or sell shares at the contract's inception. Instead, the obligation was contingent upon a future event, which determined the existence of a contract for purchase or sale. The Court emphasized the distinction between contracts with present obligations and those where obligations arise based on conditions or contingencies.

The Court further delved into the concept of contingent contracts, highlighting the potentiality of obligations based on future events. It was established that at the time of contract formation, there was no complete obligation for the defendant to purchase the shares, as it was dependent on a future contingency. The Court rejected arguments suggesting multiple promises or alternative obligations within the contract, emphasizing the singular nature of the obligation contingent upon a specific event.

In conclusion, the Court held that the contract did not constitute a contract for the purchase or sale of shares at the time of its formation. The contract only materialized at the end of 12 months, with performance required immediately or within a reasonable time. As such, the contract was deemed valid and enforceable, not falling within the purview of the Bombay Act. The appeal was allowed, the previous decree was set aside, and the suit was remanded for trial on other issues, with costs awarded to the appellant.