9911796707
TMI Blog2013 (7) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... As requested, Bhagwati on 25th of July, 1986 advanced a sum of Rs.38,83,000/- as loan to Tuhin. Bhagwati and Tuhin later, on 19th November, 1986 entered into a formal agreement in respect of the aforesaid loan and Tuhin assured to repay the loan on or before 31st December, 1991. On 30th of October, 1987, Tuhin agreed to transfer 3530 shares of Peerless to Bhagwati by way of repayment of the aforesaid loan. In the light thereof, Tuhin handed over the original share scrips as also the transfer deeds for doing the needful by Bhagwati. Tuhin on 30th October, 1987, wrote that Bhagwati would be entitled to all the benefits i.e. dividend, bonus shares etc. in respect of all these shares. It seems that the transfer deeds were not properly filled in and executed and accordingly, Bhagwati on 28th December, 1987 wrote to Tuhin to put his signature in the fresh transfer deeds and return them to it. Bhagwati further requested Tuhin to send it shares and dividends received by him from Peerless. During these developments, Peerless declared bonus shares in the ratio of 1:1 and Tuhin being the registered shareholder, received further 3530 bonus shares. Tuhin, it appears, did not sign the fresh tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act'. According to Peerless, the contract for sale of shares was not a spot delivery contract, signatures of Tuhin differed from the signatures on the record of Peerless and further the stamps affixed on the instruments of transfer had not been cancelled. Bhagwati re-lodged the shares for transfer on 14th February, 1995 with Peerless but again Peerless did not register those shares in the name of Bhagwati. Bhagwati, aggrieved by that, approached the Company Law Board, Eastern Region by filing an application under Section 111 of the Companies Act, 1956 hereinafter to be referred to as 'the Act' and the Company Law Board by its judgment and order dated 25th November, 1998 dismissed the said application inter alia holding that transfer of shares in favour of Bhagwati was against the provisions of Sections 13 and 16 of the Regulation Act and as such, illegal. In the opinion of the Company Law Board Peerless rightly refused registration of transfer. While doing so, the Company Law Board further observed that the shares of a public limited company which are not registered in the Stock Exchange also come under the purview of Regulation Act. In this connection, the Company Law Board obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion does not satisfy the definition of a spot delivery contract since part of the consideration passed on much after the alleged sale of shares on 30.10.87." Assailing the aforesaid judgment and order of the Company Law Board, passed in Original Petition No.15(111)/ERB/1995, Bhagwati preferred an appeal before the High Court, inter alia, contending that the shares of Peerless, a public limited Company having not been listed on any recognized stock exchange, it will not come within the definition of 'securities' under Section 2(h)(i) of the Regulation Act. Further the transaction between it and Tuhin was a case of spot delivery contract and therefore, the view taken by the Company Law Board on both the counts are erroneous. The Company Judge, negated both the contentions and observed that the provisions of the Regulation Act would be applicable to a public limited Company even though its share is not listed on any recognized stock exchange. Further, the transaction did not satisfy the definition of a spot delivery contract since part of consideration passed on 21st November, 1994, when Bhagwati made payment of Rs.10 lakh to Tuhin much after the transfer of shares on 30th Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of shares included Rs.10,00,000/- (Rupees ten lakh) only paid by Bhagwati to Tuhin on November 21, 1994. The said findings is sustainable from the reasoning given by the Company Law Board and, therefore, cannot be interfered with in this appeal." That is how, the appellant is before us with the leave of the Court. It is relevant here to state that the Company Law Board has held that transfer of shares in favour of Bhagwati is in the teeth of Sections 13 and 16 of the Regulation Act and hence, we deem it expedient to refer to the aforesaid provisions one after another. Section 13 of the Regulation Act makes contract in notified areas illegal in certain circumstances, same reads as follows: "13. Contracts in notified areas illegal in certain circumstances.- If the Central Government is satisfied, having regard to the nature or the volume of transactions in securities in any State or States or area, that it is necessary so to do, it may, by notification in the Official Gazette, declare this section to apply to such State or States or area and thereupon every contract in such State or States or area, which is entered into after the date of the notification otherwise than betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Counsel representing respondent No.1 submits that the provisions of Regulation Act apply to the shares of a public limited company which are not listed on any stock exchange. According to him, for securities of a public limited company to be marketable, it does not necessarily require to be sold in any market of a specified nature i.e. stock exchange. He submits that it may be any area where buyers and sellers are in contact with one another and there securities can be sold. In view of the rival submissions, the first question which falls for our determination is as to whether the provisions of Regulation Act will apply to the shares of a public limited company which are admittedly not listed on any stock exchange? Admittedly, the shares of Peerless, a public limited company in respect of which the appellant had sought rectification are not listed in the stock exchange. In our opinion, notwithstanding that if shares come within the definition of "securities" as defined under Section 2(h)(i) of the Regulation Act, the indictments contained in Section 13 would apply. The word, 'securities' has been defined under Section 2(h)(i) of the Regulation Act which reads as follows: "2. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the stock exchange come within the definition of securities and hence, the provisions of Regulation Act apply. A Division Bench of the Calcutta High Court in the case of East Indian Produce Ltd. (supra) relying on its earlier decision in the case of B.K.Holdings (P) Ltd. (supra) came to the same conclusion and held as follows: "In my view to accept the contention of Mr. Dipankar Gupta on this aspect of the case would be to ascribe too narrow a meaning to the expression "marketable securities". As will be evident from the dictionary meaning set out above the expression "marketable" has been equated with "saleable". In other words, whatever is capable of being bought and sold in a market is marketable. I see no warrant whatsoever for limiting the expression "marketable securities" only to those securities which are quoted in the stock exchange. This argument of Mr. Gupta, therefore, fails." True it is that the Bombay High Court in the case of Dahiben Umedbhai Patel (supra) has taken a view that the shares of a private company does not possess the character of liquidity and, therefore, cannot be said to be marketable. Relevant portion of the judgment reads as follows: "It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad referred to the decisions of the Calcutta High Court in the case of B.K. Holdings (supra) and East Indian Produce Ltd.(supra) but disagreed with the ratio of those judgments without assigning any reason. The learned Single Judge found himself bound to follow the earlier Division Bench judgment in the case of Dahiben Umedbhai Patel (supra). The observation of the learned Single Judge in this connection reads as follows: "On the contrary, my prima facie view of these two judgments accords with the submission of Mr. Mehta. I am of the prima facie view that a transaction of shares of a public limited company, unlisted on the stock exchange, is not intended to be governed by this Act. Mr. Cooper strongly relied on the judgment of the Division Bench of the Calcutta High Court in East Indian Produce Ltd. (1988) 64 Comp. Cas 259 on this issue also. The Calcutta High Court relied on an earlier judgment of the same High Court in B.K. Holdings (P) Ltd. v. Prem Chand Jute Mills (1983) 53 Comp Cas 367. At that stage, the judgment of Mrs. Manohar J. was cited before the learned single judge of the Calcutta High Court. He seemed to take the view that the decision of Mrs. Manohar J. in Norman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning would not vary when the same word is used at more than one place in the same Statute, otherwise it will defeat the very object of the definition Section. Accordingly, our answer to the first question set out earlier is that the provisions of the Regulation Act would cover unlisted Securities of Public Limited Company. In other words, shares of Public Limited Company not listed in the stock-exchange is covered within the ambit of Regulation Act. As stated in the preceding paragraph of the judgment, the Company Law Board has held that transfer of shares in favour of Bhagwati was also against the provisions of Section 16 of the Regulation Act. Section 16(1) of the Act confers power on the Central government to prohibit contracts in certain cases. Section 16 reads as follows: "16. Power to prohibit contracts in certain cases.- (1) If the Central Government is of opinion that it is necessary to prevent undesirable speculation in specified securities in any State or area, it may, by notification in the Official Gazette, declare that no person in the State or area specified in the notification shall, save with the permission of the Central Government, enter into any contract for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the contract in question cannot be said to be a spot delivery contract and, in this connection, the learned Senior Counsel draws our attention to the terms of agreement which formed part of the decree. The second question, therefore, which falls for our determination is as to whether the contract in question is a spot delivery contract. This expression is defined under Section 2(i) of the Regulation Act. It reads as follows: "2. Definitions - In this Act, unless the context otherwise requires, - x x x (i) "spot delivery contract" means a contract which provides for - (a) 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 periods 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; (b) transfer of the securities by the depository from the account of a beneficial owner to the account of another beneficial owner when such securities are dealt with by a depository; x x x" According to the definition, a contr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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