TMI Blog1978 (7) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... ffs for a price of Rs. 2,77,500. Out of this purchase price, Rs. 10,000 was to be paid on the signing of the agreement and the balance of Rs. 2,67,500 was to be paid by 10 equal annual instalments of Rs. 26,750. The first of such instalments was to be paid on or before 31st December, 1967, and the subsequent instalments were to be paid on or before 31st December of each succeeding year till the entire price was paid to the plaintiffs. The 5th defendant guaranteed the above payments to the plaintiffs. Accordingly, the plaintiffs sold and delivered to defendants Nos. 1 to 4 "875 ordinary and 1,780 redeemable cumulative preference shares" of A. MacRae Company. Defendants Nos. 1 to 4 paid to the plaintiffs a sum of Rs. 10,000 on the signing of the agreement. They however, did not pay any of the annual instalments as agreed between the parties. The present suit is to recover the amount due to the plaintiffs under the fourth and the fifth instalments. Apparently, the agreement does not contain any provision regarding acceleration of payment in the event of a default. Hence, separate suits have been filed by the plaintiffs to recover the amounts of the instalments as and when the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re were no outstanding debts of the said company and that if it was found that there were debts the same would be paid by the plaintiffs as mentioned in para 1( b ), ( g ) and ( j ) and para 2 of the written statement? (4)Whether the plaintiffs became and are liable to pay the amounts in respect of the said debts as mentioned in para 2 of the written statement? (5)Whether the original 1st defendant and defendants Nos. 2 to 4 have elected to treat the said breach as breach of warranty and are entitled to a deduction in price and the entire price is extinguished as claimed in para 2 of the written statement? (6)Whether the said agreement is illegal and void as claimed in para 3 of the written statement? (7)Whether the defendants are liable to pay any amount to the plaintiffs and if so what amount? (8)Whether the plaintiffs are entitled to any relief and if so, what? Issue No. 5 raises an important question which may be considered first, namely, whether there is any breach of a condition and/or warranty by the plaintiffs which can be set up by the defendants in diminution or extinguishment of their liability to pay the price under section 59 of the Sale of Goods Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany. Hence, this clause does not stipulate any condition and/or warranty regarding the goods sold. It is not a condition governing the contract for sale of shares, between the plaintiffs and the defendants. It is only in the nature of a collateral stipulation. Benjamin on Sale of Goods, 1950 Edn., has laid down Various tests for determining whether a representation or statement made in the Contract is a condition or not. At page 555, he quotes with approval the ruling laid down by Lord Mansfield in Kingston v. Preston [1973] 2 Doug KB 685; namely, "that the dependence or independence of covenants is to be collected from the evident sense and meaning of the parties, and that however transposed they might be in the deed, their precedency must depend on the order of time in which the intent of the transaction requires their performance". Among the tests laid down by him for determining this intention are: "When a covenant or promise goes only to part of the consideration, and a breach of it may be paid for in damages, it is an independent covenant, not a condition" and "Where from a consideration of the whole instrument it is clear that the one party relied upon his remed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eller. He is entitled to set off his claim for damages for defective supply of goods against the seller's claim for price. In Mulla's Sale of Goods and Partnership Acts, 4th Edn.; p. 239, it is stated that "from the definition of warranty in section 12(3) it is clear that a breach of it gives rise to a claim for damages only on the part of the buyer". In Sha Trilokchand Poosaji v. Crystal and Co., AIR 1955 Mad. 481, a Division Bench of the Madras High Court has also taken the view that where goods not answering to the description contracted for are delivered to a buyer, two alternatives are open to him: ( a ) the buyer may either reject the goods and obtain a refund of the price if he has already paid it and sue for damages for non-delivery, or (b) he may accept the goods and sue for damages for a breach of warranty. In the latter case, it is open to the buyer to pay the price and file a separate suit for damages for a breach of warranty. It is also open to him in the event of the seller bringing his suit for recovery of price to plead damages for defective delivery as a set-off to the claim of price. In addition to the general damage that he may set off in this manner, if he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendant's written statement." "136. Court or judge may disallow set-off. The court or a judge may on the application of the plaintiff at any stage of the proceedings in a suit, if in the opinion of the Court or Judge such set-off cannot be conveniently disposed of in the pending action or ought not to be allowed, refuse permission to the defendant to avail himself thereof, and require him to file a separate suit in respect thereof." The reason why a set-off requires to be specifically pleaded and replied to is that the claim which is so made is a separate claim for which the plaintiff may have his own defence which he should be allowed to set up and in respect of which proper issues can be framed and evidence led. If this is not done, substantial injustice can be caused to the plaintiff. In the present case, although liberty was given to the defendants to file a counterclaim they have neither filed a counter-claim nor a set-off. The defendants have not even quantified the damages which they claim to have suffered. Apart from stating that the damages would be more than the price that they would have to pay under the contract, they have not given the actual quantum of damage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s seek to rely should not have been given to the plaintiffs. The only explanation given by Mr. Mody is that the files containing the documents were not traceable and some of those documents were traced only in March, 1978. Even so the matter had been fixed for hearing subject to overnight part-heard on 19th April, 1978, and if the defendants were at all serious about pressing their claim for damages, they would have made their affidavit of documents before 19th April, 1978. The defendants have not chosen to do so till 12th July, 1978. In view of this conduct of the defendants, I saw no reason to take this affidavit of documents on file which would have entailed a further adjournment of a matter which had been specifically fixed for hearing on this day. Hence, I rejected the affidavit of documents. In the absence of these documents, it will not be possible for the defendants to prove their claim for damages. Since the claim of the defendants under section 59 of the Sale of Goods Act is in the nature of damages, it is also not possible for the defendants to adjust their claim for damages against the plaintiffs' claim for price. Adjustment of an account can only be in respect of asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area which is entered into after the date of the notification otherwise than between members of a recognised stock exchange in such State or area or through or with such member shall be illegal." By a notification dated 29th November, 1957, section 13 has been made applicable to Greater Bombay. As a result, the present contract is in contravention of the provisions of section 13 and is illegal. Secondly, the agreement provides for payment of price of the shares by annual instalments. It is, therefore, not a "spot delivery contract" as defined under section 2, sub-section (1), of the Securities Contracts (Regulation) Act, 1956 (hereinafter called "the Act"). A "spot delivery contract" is defined under the Act as follows: " 'Spot delivery contract' means a contract which provides for the actual delivery of securities and the payment of a price therefor either on the same day as the date of the contract or on the next day, the actual period taken for the despatch of the securities or the remittance of money therefor through the post being excluded from the computation of the period aforesaid if the parties to the contract do not reside in the same town or locality." In order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction between a private company and a public company was present to the minds of the legislators when the Act was enacted and if the intention was to exclude shares of a private company from the provisions of the Act, this would have been expressly so provided. According to him, there is no ambiguity either in the definition of "securities" or in the rest of the provisions of the Act and they apply to all types of shares whether in a private limited company or in a public limited company. In support of his contention that the plain meaning of the words should be accepted he has relied upon a number of authorities, a list of which is separately appended as list I. There could be no quarrel with the proposition advanced by Mr, Mody that where the words are clear and unambiguous they must be given effect to. But, in the present case, from the way the definition is worded it is far from clear what the meaning of the words used in the definition clause is. In the definition of "securities" given in the Act, the material words for the present purpose are "shares and other marketable securities, of a like nature". Firstly, what is the meaning of the word "marketable" when used in conjunc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rolling the business of buying, selling or dealing in securities." If the definition of "security" is read along with the definition of "stock exchange", it becomes clear that the purpose of the Act is to control securities which are normally dealt with on the stock exchange, that is to say, shares of a public limited company. Noscitur a sociis is a well-known maxim of interpretation of words used in statutes. This rule of interpretation says that "the meaning of a word is to be judged by the company it keeps". It is, therefore, legitimate to construe the words in an Act with reference to the words found immediately connected with it. In the present case, the words "other marketable securities of a like nature" are words of a general character which would apply to all the preceding words, namely, "shares, scrips, stocks, bonds and debentures". According to Halsbury's Laws of England, 3rd Edn., Vol. 36, p. 600, as a matter of ordinary construction where several words are followed by a general expression which is as much applicable to the first and other words as to the last, that expression is not limited to the last, but applies to all. If both these principles are applied, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted to a sense analogous to a less general. Expressed differently, it means that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it). . . . . . " A list of other cases which were quoted before me in connection with the application of this maxim is annexed as list II. It is thus permissible to read the definition of "securities" so that it applies to only securities which are marketable, that is to say, those securities which enjoy a high degree of liquidity and can be freely bought and sold in the open market. This interpretation is strengthened if we examine the background in which the Act was passed, the mischief which was sought to be suppressed by the Act and the statement of objects and reasons for framing this legislation. For the correct interpretation of a statute it is permissible to examine all these data. The present Act was initially drafted by a committee which was specially appointed for the purpose of examining legislation for regulation of stock exchanges, contracts and securities, which was popularly known as the Gorwalla Committee. The Securities Contracts (Regulation) Act, 1956, was passed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration before this Committee. After this Committee made its report a Bill embodying its recommendations was presented to Parliament. This Bill was passed and has become the present Act. The statement of objects and reasons which accompanied the presentation of the Bill before Parliament states as follows (Government of India Gazette (Extraordinary), 1954, Part II, Sec. II, page 781): "The object of this Bill is to provide for the regulation of stock exchanges, and of transactions in securities dealt in on them with a view to preventing undesirable speculation in them." It goes on to say that the Gorwalla Committee was appointed for the purpose of considering the draft proposals of the Government on the subject of stock exchange regulation and to submit a revised draft Bill and to make any other recommendations which it thought fit. The report of this Committee and the draft Bill prepared by it were circulated to all the principal stock exchanges in this country, chambers of commerce and other interested associations and after considering all these comments the present Bill has been framed. It says that after that "the Bill as now drafted, broadly follows the recommendations con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Act, it would have been necessary to provide a suitable machinery through which such shares could have been sold but no such provision is made in the Act because it was never contemplated that such shares would be covered by the Act. Similarly, bye-laws of the Bombay Stock Exchange also do not deal with the listing of shares in private limited companies. By their very nature, these shares are not freely transferable and they are not dealt with on the stock exchange. The application of the Act to the shares of a private limited company would also result in tremendous hardship. In a number of cases it would become extremely difficult, if not impossible, to sell such shares. It is true that "spot delivery contracts" are excluded from the purview of the Act. It has been argued that shares of a private limited company can be sold by making spot delivery contracts. But in practice articles of association of a number of private limited companies impose restrictions on their transfer; for example, the articles often provide that such shares should be offered for sale to the existing members of the company at a valuation that may be fixed by the auditors. It would be very diffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d advancing the remedy." It is true that if the word "shares" is taken in its literal meaning, the shares in a private limited company would be covered by the Act. It is also true that normally when the language of the Act is clear it is not open to look at the surrounding circumstances relating to the framing of the Act, such as statement of objects and reasons or the question of mischief which is sought to be prevented. But where there are sufficient indications in the Act itself, that the Act is limited in its application to certain types of shares, it is possible to look at all these in order to prevent the mischief which was sought to be suppressed and to advance the remedy. In fact, in the present case, it would be unjust if the Act is interpreted literally ignoring all these factors. In Nasiruddin v. State Transport Appellate Tribunal [1975] 2 SCC 671; AIR 1976 SC 331, Ray C.J. has stated thus: "If there are two different interpretations of the words in an Act, the court will adopt that which is just, reasonable and sensible rather than that which is none of those things. If the inconvenience is an absurd inconvenience, by reading an enactment in its ordinary sense, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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