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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.7445 OF 2004

BHAGWATI DEVELOPERS PVT. LTD.    APPELLANT

VERSUS

PEERLESS GENERAL FINANCE & INVESTMENT COMPANY LTD AND ANR.    RESPONDENTS

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

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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  

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. 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  

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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  transfer  deeds  and  retained  the  bonus  

shares. Bhagwati by its letter dated 6th of July,  

1988 asked Tuhin to furnish fresh transfer deeds in  

respect  of  the  total  shares  i.e.7060  shares.  

Peerless declared further bonus shares in the year  

1991  in  the  ratio  of  1:1  and  Tuhin  being  the  

registered shareholder of 7060 shares was further  

allotted  7060  bonus  shares.  In  this  way  Tuhin  

altogether got 14120 shares.

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When Tuhin did not accede to the request of  

Bhagwati  for  transferring  the  entire  shares,  

Bhagwati on 29th May, 1991 filed a suit in the Court  

of  Civil  Judge  at  Allahabad  and  obtained  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.  In  terms  of  the  

agreement,  an  application  for  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  

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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 (Regulation) Act,  

1956;  hereinafter  to  be  referred  to  as  ‘the  

Regulation Act’. According to Peerless, the contract  

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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  

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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 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  which  the  sales  of  

shares  have  taken  place,  observed  that  the  

transaction  does  not  come  within  the  expression,  

“spot delivery contract” as defined under Section  

2(i)  of  the  Regulation  Act.  While  doing  so,  the  

Company Law Board observed as follows:  

“It  is,  therefore,  obvious  that  a  part of the consideration for the sale  of shares passed on much after the date  

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on which the sale of shares is alleged  to have taken place on 30.10.87. We are  unable  to  accept  the  argument  of  Mr.  Bose that the payment of Rs.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  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.”

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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 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  

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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 October, 1987.  

To come to the aforesaid conclusion, the High Court  

also took into account the fact that in terms of the  

compromise  decree  as  part  of  consideration  Tuhin  

retained as absolute owner all the dividends on the  

entire shares including the bonus shares up to the  

accounting year 1989-90. The observation of the High  

Court in this connection reads as follows:

“In the abovementioned background  it  is  necessary,  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,  

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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  October  30,1987.  The  payment  of  Rs.10,00,000/-(Rupees  ten  lakh)  only  by  Bhagwati  to  Tuhin  on  November 21, 1994 was  a part of  consideration for the sale of the  said  shares  and,  further  it  was  agreed  between  the  Bhagwati  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  

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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  at. The Company Law Board found, as  findings  of  fact,  that  the  consideration  for  transfer  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:

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“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  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 terms and  conditions  as  may  be  stipulated by the respective  stock  exchanges  with  prior  approval  of  Securities  and  Exchange Board of India;

(ii) require  prior  permission  from  the  respective  stock  exchanges  if  so  stipulated  by the stock exchanges with  prior approval of Securities  and  Exchange  Board  of  India.”

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From  a  plain  reading  of  the  aforesaid  

provision, it is evident that contract in relation  

to securities in notified areas is illegal if made  

otherwise than between the members of recognized  

stock  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 “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  

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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 on sound reasoning and  

therefore, commend our acceptance.

Mr.Bhaskar  P.Gupta,  learned  Senior  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  

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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  

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Section 13 would apply. The word, ‘securities’ has  

been  defined  under  Section  2(h)(i)  of  the  

Regulation Act which reads as follows:

“2.  Definitions –  In  this  Act,  unless  the  context  otherwise  requires, -  

    x        x        x         

 “(h) “securities” include-

(i)  shares,  scrips,  stocks,  bonds,  debentures,  debenture  stock  or  other  marketable  securities of a like nature in  or  of  any  incorporated  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  

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Edition)  explains  the  word,  ‘marketable’  as  

follows:

“Marketable. Saleable. Such things  as  may  be  sold  in  the  market;  those  for  which  a  buyer  may  be  found; merchantable.”

The  compact  edition  of  the  Oxford  English  

Dictionary, Vol.I p.1728 gives the meaning of the  

expression “marketable” as follows:

“1. Capable of being marketed that  may  or  can  be  bought  or  sold;  suitable  for  the  market;  that  finds a ready market; that is in  demand, saleable.

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  

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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 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  

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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  

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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  will  be  registered  as  a  member  of  the  company.   Such  shares  cannot  be  sold in the market or, in other  words, they cannot be said to be  marketable and cannot, therefore,  be  said  to  fall  within  the  definition  of  “securities”  as  a  “marketable security….”

We must at the outset state that this case  

relates to a private company and having regard  

to the absence of free transferability, shares  

were  held  not  to  be  marketable  securities  as  

defined under Section 2(h)(i) of the Regulation  

Act.  This would be evident from the following  

passage of the said judgment:

“…A  market,  therefore,  contemplates  a  free  transaction  

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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, 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  

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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 stock exchange is not intended to  

be covered under the Regulation Act.  While doing  

so, the learned Single Judge had 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  

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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  J.  Hamilton  v.  Umedbhai  S.  Patel  (1979)  49  Comp  Cas  1,  must  be  confined  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  

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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 view I have taken  of  the  judgments  of  the  learned  single  judge  and  the  appeal  judgment of our court, I consider  myself bound to take the view that  the  Securities  Contracts  (Regulation)  Act,  1956,  is  not  intended  to  regulate  private  transactions in shares of public  limited companies, not listed on  the  stock  exchange.   This  contention  also,  therefore,  fails.”  

The  Regulation  Act  was  enacted  to  prevent  

“undesirable  transaction  in  securities  by  

regulating business of dealing therein” and from  

that one cannot 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  

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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……………………………..”

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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 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:

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“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  the  sale  or  purchase of any security specified  in the notification except to the  extent and in the manner, if any,  specified therein.

(2) All contracts in contravention  of the provisions of sub-section  (1) entered into after the date of  the notification issued thereunder  shall be illegal.”

From  a  plain  reading  of  the  aforesaid  

provision it is evident that in order to prevent  

undesirable stipulation in specified securities 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  

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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  the  Central  Government  

enter into any contract for the sale or purchase  

of  securities  other  than  such  spot  delivery  

contract”  as  is  permissible  under  the  Act,  the  

Rules,  bye-laws  and  the  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  

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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 cannot  

be said that the appellant has got a limited rule.  

On  merit,  the  respondents  submit  that  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.   

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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  

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securities are dealt with by a  depository;

x         x           x”   

According  to  the  definition,  a  contract  

providing  for  actual  delivery  of  securities  and  

the payment of price thereof either on the same  

day as the date of contract or on the next day  

means a spot delivery contract.  When we consider  

the facts of the present case bearing in mind the  

definition aforesaid, we find that the contract in  

question is not a spot delivery contract. True it  

is  that  by  letter  dated  30th of  October,  1987  

written by Tuhin to Bhagwati, he had stated that  

the  formal  agreement  had  been  executed  between  

them  on  10th November,  1986  and  as  per  the  

agreement  he  is  transferring  the  entire  3530  

shares of Peerless purchased from the loan amount  

and the transfer is in its repayment.  However,  

the  agreement  dated  21st November,  1994  between  

Bhagwati  and  Tuhin  which  formed  part  of  the  

compromise decree provides that the sale of shares  

took  place  on  30th October,  1987  and  in  

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consideration thereof Bhagwati paid a sum of Rs.  

10 lakhs on 21st November, 1994 and further the  

dividend on the entire shares up to the accounting  

year  1989-90  amounting  to  Rs.8,64,850  to  be  

retained by Tuhin.  In the face of it, the plea of  

Bhagwati that the payment of Rs. 10 lakh was made  

to buy peace, is not fit to be accepted and, in  

fact, that forms part of the consideration for the  

sale of shares.  Once we take this view, the plea  

of  the  appellant  that  it  is  a  spot  delivery  

contract is fit to be rejected.  We agree with the  

reasoning and conclusion of the Company Law Board  

and the High Court on this issue.

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Both the contentions of the appellant having  

no substance, we do not find any merit in this  

appeal and it is dismissed accordingly but without  

any order as to costs.

………………………………………………………………J.  (CHANDRAMAULI KR. PRASAD)

                        ………..……….………………………………..J.      (V.GOPALA GOWDA)

    NEW DELHI, JULY 15, 2013.  

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