Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

Bhagwati Developers Pvt. Ltd. Versus Peerless General Finance & Investment Company Ltd. and another

2013 (7) TMI 606 - SUPREME COURT

Regulating provisions for unlisted shares - Whether the shares of a public company which is an unlisted company on being transferred would attract the provisions of SCR Act - Held that:- The transactions were hit by the provisions of the SCR Act and the guidelines - the consideration for transfer of shares were duly paid – shares of public limited company though not listed in the stock exchange come within the definition of securities - the provisions of Regulation Act apply – relied upon East I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ondent No.2 herein, approached Bhagwati for a loan of Rs.38,83,000/- for purchasing 3530 equity shares of Respondent No.1, Peerless General Finance & Investment Company Limited, hereinafter referred to as Peerless . 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. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 transfer deeds and retained the bonus shares. Bhagwati by its letter dated 6th of Ju .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ined an ad interim order of injunction restraining Tuhin from claiming any right, title or interest in respect of the aforesaid 14120 shares of Peerless. During the pendency of the suit, Tuhin and Bhagwati settled their dispute out of Court and executed an agreement dated 21st November, 1994, according to which Tuhin acknowledged to have sold 3530 equity shares to Bhagwati on 30th October, 1987 which entitled it to the bonus shares declared in the years 1987 and 1991 totaling 14120 equity shares .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at 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 pra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he 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 dismis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aw Board observed as follows: We, therefore, hold that the provisions of the SCR Act, 1956, including the provisions of Sections 13,16 and 17 of the Act would be applicable to a public limited company even though its shares may not be listed on any recognized stock exchange. As regards the plea of the appellant that the sales of shares in question is a spot delivery contract, the Company Law Board taking into account that consideration for sales of shares having been paid much after the date on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s.10.00 lacs was made only to buy peace. We find that the agreement dated 21.11.94 clearly states that the payment of Rs.10.00 lacs 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ares 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 following conclusion: We, therefore, hold that the contract of sale of shares in question does not satisfy the definition of a spot delivery contract since part of the consideration .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd 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, w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cessary, in my view, to note the findings of fact arrived at by the Company Law Board. The Company Law Board found, as findings of fact, that the provisions of the Securities Contract (Regulation) Act, 1956 would be applicable to a public limited company even though it s shares might not be listed on any recognized stock exchange. It was, further, held that it was obvious that the part of consideration for the sale of shares passed on much after the date on which the sale of shares took place on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 Co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 de .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ection 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 between members of a recognized stock exchange or recognized stock exchanges in such State or States or area or through or with such member shall be illegal: Provided that any contract entered into between members of two or more recognized stock exchanges in such State or States or area, shall- i) be subject to such .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

k exchange. It is not in dispute that the place where the contract for sale of shares in question has been entered is a notified area for the purpose of Section 13 of the Regulation Act. Further, the contract is not between the members of a recognized stock exchange. In order to overcome this 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 securit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 on so .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s 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, notwithstandi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ncorporated company or other body corporate; x x x From a plain reading of the aforesaid provision, it is evident that for shares of a public limited company to come within the definition of securities they have to satisfy that they are marketable. The word, marketable has not been defined in the Regulation Act and hence to understand it, we have to revert to its dictionary meaning. Black s Law Dictionary (Sixth Edition) explains the word, marketable as follows: Marketable. Saleable. Such things .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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? .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t case those shares with these limitations cannot be said to be marketable. In our opinion, therefore, shares of public limited company though not listed 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nge. 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 thus clear that the shares of a private company do not possess the character of liquidity, which means that the purchaser of shares cannot be guaranteed that he .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

be evident from the following passage of the said judgment: …A market, therefore, contemplates a free transaction where shares can be sold and purchased without any restriction as to title. The shares which are sold in a market must, therefore, have a high degree of liquidity by virtue of their character of free transferability. Such character of free transferability is to be found only in the shares of a public company. The definition of a private company in S. 3 of the Companies Act, 19 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rlier 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 Calcu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d to a situation of transfer of shares of a private limited company. So far as the decision of the Division Bench of the Calcutta High Court in East Indian Produce Ltd. (1988) 64 Comp Cas 259 is concerned, it seems to follow the earlier judgment in B.K. Holdings. With great respect to the learned Judges of the Calcutta High Court, who decided the aforesaid two cases, even if the matter were not res integra, I would be inclined to disagree with their observations made therein. However, in the vie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t infer that 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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

efinition 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…………………………….. When the word Securities has been defined under the Regulation Act, its meaning would not vary when the same word is used at more than one place in the same Statute, otherwise it will defeat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s 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, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ities in any State or area the Central Government by notification is competent to declare that no person in any State or area specified in the notification shall, save with the permission of the Central Government, enter into any contract for the sale or purchase of any security specified in the notification. The Central Government in exercise of the aforesaid power issued notification dated 27th of June, 1969 and declared that in the whole of India no person shall save with the permission of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nnot 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 con .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version