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TMI Blog2013 (7) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... change was covered within the ambit of Regulation Act. Nature of Contract - whether the contract in question is a spot delivery contract – Held that:- The contract in question is not a spot delivery contract – formal agreement was executed later on and the delivery also took place at a later date - decided against petitioner. - Civil Appeal No.7445 of 2004 - - - Dated:- 15-7-2013 - Chandramauli Kr. Prasad And V. Gopala Gowda,JJ. 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 Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acs 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 follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gwati 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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