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TMI Blog2002 (11) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... es linked with equity shares for public issue applied therefor. The respondents are public limited companies. They had offered capital for subscription but had linked the equity shares with the accrued redeemable non-convertible debentures. A complaint was made to the effect (which is the subject-matter of Civil Appeal Nos. 2071-2100 of 1987) that the issue of equity shares tied up with debentures is a restrictive trade practice within the meaning of Sections 2(o)(ii), 33(1)(g ) of the M.R.T.P. Act. In Civil Appeal No. 2490 of 1995, the subject-matter of complaint was that the public issue of debentures offered by the respondent therein upon certain terms and conditions amounted to unfair trade practice as the respondent-company in their prospectus for raising capital through the issue of debentures made false and misleading claims. The said complaints were inquired into by the Director General, who upon finding a prima facie case, recommended for issuance of notice; whereafter a proceeding was initiated by the Commission. The respondents herein raised preliminary objection questioning the jurisdiction of the Commission to deal with the subject-matter of such complaints. The Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore allotment but such amendment being merely clarificatory in nature, the Commission must be held to have misdirected itself in holding that shares and debentures before they are issued do not come within the purview of expression 'goods'. It was argued that a public limited company offers shares from time to time and thus an act of raising capital by allotment of shares would be an act of 'trade' and consequently the same would amount to 'rendition of service' within the meaning of section 2(r) of the Act. Reliance in this connection has been placed in the case of Lucknow Development Authority v. M.K. Gupta (1994) 1 SCC 243. It was further submitted that the decision of this Court in Morgan Stanley Mutual Fund v. Kartick Das 1994 1 SCL 9, whereupon the Commission has placed reliance is not applicable to the fact of the present case as the same was rendered while considering a matter interpreting the provi- sions of the Consumer Protection Act, 1986. In any event, as therein various questions raised in these appeals had not been considered, the matter may be referred to a larger Bench for an authoritative pronouncement by this Court. Mr Choudhary further submitted that linking s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to any trade;" The expression 'debenture' however, is not defined in the Act. The question therefore, which arises for consideration is as to whether convertible debentures would be 'goods' within the meaning of provisions of the MRTP Act. Debentures, as ordinarily understood, in our considered view, would not come within the purview of definition of goods as it is simply an instrument of acknowledgement of debt by the company whereby it undertakes to pay the amount covered by it and till then it undertakes further to pay interest thereon to the debenture-holders. It has been observed by the Company Law Committee in its report quoted by Ramaiya at page 26 of his commentary: "A debenture means a document which either creates or acknowledges a debt. Ordinarily a debenture constitutes a charge on the undertaking of the company or some part of its property, but there may be debentures without any such charge and under the law, it is not necessary that the debentures should create a charge. We have, therefore, brought the definition of debentures, in line with that contained in English Companies Act, 1948, which defines 'debentures' as including 'debenture stock' bonds and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue, their allotment, their transferability and in the applicability of forfeiture provisions. The corpus of the two issues forms two different segments of capital - shares representing the share capital and the debentures representing the loan capital. Shareholders are the owners of the company till the company is folded up fully while debenture-holders are only creditors of the company -sometimes secured and sometimes unsecured and that too for a defined period. The rights of the shareholders and debenture-holders are different as also their remedies. To the extent the comparison could bear between the two, the procedures are by and large the same for both in the matter of issue, allotment and transfers and forfeiture. Shares therefore, are distinct from debentures, although in the usual parlance they both are grouped together in many legislations and referred to some times by the generic term of 'scrip'. It is on account of their free transferability and marketability, they are referred together. The stamp duty on the share certificates and debenture certificates and on their transfers is totally different and bears no comparison. The incidents of debenture certificates as seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock or shares of or in any public company in England." Debentures are neither "stock" nor "shares". A distinction is drawn between "debenture stock" and "shares or stock" of a company by the Companies Clauses Act, 1863 (26 & 27 Vict. C.118) section 23. The meaning of "stock" in the section is indicated by its collocation with "shares" as being something ejusdem generis therewith. If debenture stock would not be within the section, a fortiori debentures are not: see Palmer's Company Precedents, 8th ed. Part III. P. 5. Debentures are clearly not shares. They are simply specially debts due from the company, which may or may not be secured by a charge on the company's assets. A debenture-holder as such is not a member, but a creditor of the company. He has no share in the capital of the company, and his right to payment is not dependent on its profits. He has not, as a shareholder has, a voice in the management of the company's affairs. In the case of In re., Bodman (l) it was held by Chitty J. that a bequest of all the testator's shares in a gas company would not pass debenture stock of that company. He said in giving judgment "Debenture stock therefore stands in a materially differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or otherwise from a shop, business house, corporation, store, fair price shop to use of private or public services. In Oxford Dictionary a consumer is defined as, "a purchaser of goods or services". In Black's Law Dictionary it is explained to mean, "one who consumes. Individuals who purchase, use, maintain, and dispose of products and services. A member of that broad class of people who are affected by pricing policies, financing practices, quality of goods and services, credit reporting, debt collection, and other trade practices for which State and federal consumer protection laws are enacted....." In the instant case, the action on the part of the company, in our opinion, does not involve any sale of goods or rendition of any service. The pointed issue is squarely covered by a decision of this Court in Morgan Stanley Mutual Fund (supra). Therein this Court was considering a question as to whether share for allotment of which only an application has been made was goods as defined under Section 2(1)(i) of the Consumer Protection Act, 1986. The said section reads as under : " 'goods' means goods as defined in the Sale of Goods Act, 1930." The definition of 'goods' as contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not before allotment. At that stage, he is only a prospective investor (sic in) future goods...." Furthermore, as noticed hereinbefore, the expression 'goods', underwent an amendment in the year 1991. The relevant notes on clauses as contained in the Statement of Objects and Reasons of the Monopolies and Restrictive Trade Practices (Amendment) Bill, 1991 (Bill No. 198 of 1991) speaks thus :- "Clause 2 seeks to enlarge the definition of 'goods' by including issue of shares before allotment. The scope of the definition of 'service' is also being enlarged by including chit fund. An explanation has also been added that any deals in real estate shall be deemed to be included in 'service' " It is, therefore, evident that the said amendment is not explanatory or clarificatory in nature. By reason thereof, the definition of goods was sought to be enlarged which will have prospective operation. The very fact that the Parliament in its wisdom sought to enlarge the definition of goods by including the issue of shares by allotment as also the service is a clear pointer to the fact that thereby the mischief which was existing in the said provision was sought to be remedied. It is, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "As regards the construction of these particular articles, it is plain that the words 'creation', 'issue' and 'allotment' are used with three different meanings familiar to business people as well as to lawyers. There are three steps with regard to new capital; first, it is created; till it is created the capital does not exist at all. When it is created it may remain unissued for years, as indeed it was here; the market did not allow of a favourable opportunity of placing it. When it is issued it may be issued on such terms as appear for the moment expedient. Next comes allotment. To take the words of Sterling J. in Spitzel v. Chinese Corporation, he says: 'What is an allotment of shares. Broadly speaking, it is an appropriation by the directors or the managing body of the company of shares to a particular person' " After examining the various decisions, Sarkar J. observed : "It is beyond doubt from the authorities to which we have earlier referred, and there are many more which could be cited to show the same position, that in company law 'allotment' means the appropriation out of the previously unappropriated capital of a company, of a certain number of shares to a person. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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