TMI Blog2002 (11) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... s as to whether shares or convertible debentures even before they are allotted can be considered to be goods within the meaning of section 2(e) of the Monopolies and Restrictive Trade Practices Act, 1969 (the M.R.T.P. Act ). The appellants herein pursuant to or in furtherance of an invitation to offer debentures 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 inquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of service by the respondent. It was submitted that the expression goods and service must be interpreted in a broad manner. Ms. Indira Jaising further urged that it may be that the definition of expression goods had been amended in the year 1991 so as to bring within its purview the shares and stocks including issue of shares before 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and includes the provision of any service;" Section 2(u) defines the expression "trade practice" as under: "any practice relating to the carrying on of any trade and includes ( i )anything, done by any person which controls or affects the price charged by, or the method of trading of, any trader or any class of traders; ( ii )a single or isolated action of any person in relation 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e distinction between the shares and debentures has been stated thus: "Debentures distinguished from: ( a )Shares - Although shares and debentures belong to the same genesis yet they have distinct and different characteristics. The Companies Act, 1956 deals with the issue of debentures in the same manner as it deals with the issue of shares, but the similarity ends with the mode and manner of issue, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not arise and, thus, there cannot be any doubt whatsoever that the shares before their allotment would not come into existence and they cannot be regarded as goods. Debentures would also not come within the purview of definition of stock. In Sellar v. Charles Bright Co. Ltd. (1904), KBD 447, the law is stated in the following terms : "The Judgments Act, 1838 (1 2 Vict. C. 110) S.14, speaks of "any stock 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission was concerned with the question of interpretation of the term "consumer" within the meaning of the Consumer Protection Act, 1986. It was held that: "...The right thus to approach the Commission or the Forum vests in consumer for unfair trade practice or defect in supply of goods or deficiency in service. The word consumer is a comprehensive expression. It extends from a person who buys any commodity to consume either as eatable 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the applicant for such shares could be called a consumer? In CIT. v. Standard Vacuum Oil Co. while defining shares, this Court observed : "A share is not a sum of money; it represents an interest measured by a sum of money and made up of diverse rights contained in the contract evidenced by the articles of association of the Company." 31. Therefore, it is after allotment, rights may arise as per the contract (Article of Association of Company). But certainly 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, evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court referred to the observations of Chitty J. in In re Florence Land and Public Works Co.: "To my mind there is no magic whatever in the term allotment as used in these circumstances. It is said that the allotment is an appropriation of a specific number of shares. It is an appropriation, not of specific shares, but of a certain number of shares." In Sri Gopal Jalan s case Sarkar J (as he then was) quoted with approval the following passage from Farwell LJ. in Mosley v. Koffyfontain Mines Ltd. : "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: Wha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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