LexBHAGWATI DEVELOPERS PVT. LTD. versus PEERLESS GENERAL FINANCE & INVESTMENT COMPANY LTD AND ANR.
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[2013) 7 S.C.R. 547 BHAGWATI DEVELOPERS PVT. LTD. v. PEERLESS GENERAL FINANCE & INVESTMENT COMPANY LTD AND ANR. (Civil Appeal No. 7445 of 2004) JULY 15, 2013 [CHANDRAMAULI KR. PRASAD AND V. GOPALA GOWDA, JJ.] A B SECURITIES CONTRACTS (REGISTRATION) ACT, C 1956: s. 13 - Contract in notified areas illegal in certain circumstances - Transfer of shares of Peerless General Finance and Investment Company (Peerless) - Held: In the D instant case, the place where the contract for sale of shares in question has been entered is a notified area for the purpose of s. 13 -- Further, the contract is not between the members of a recognized stock exchange and, therefore, as held by the Company Law Board, is in violation of s. 13. E s. 2(h)(i) - 'Securities' - 'Shares of Pearless General Finance and Investment Company - Held: For shares of a public limited company to come within the definition of securities they have to satisfy that they are marketable - 'Marketability' requires free transferability -- Subject to certain F 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 - Shares of public limited company though not listed in stock exchange, come within the definition of G 'securities' and, therefore, provisions of the Act would apply including the indictments contained in s. 13 thereof. ss. 2(i) and 16 - 'Spot delivery contract' - Explained - 547 H 548 SUPREME COURT REPORTS [2013] 7 S.C.R. A Shares of Peerless transferred - Part of consideration passed more than 6 years after the transfer - Held: The transaction does not come within the expression 'spot delivery contract' as defined in s.2(i) and, as such is, in violation of s.16 and Notification dated 27.6.1969 - Central Government Notification B dated 27. 6. 1969. On 30.10.1987, respondent no. 2 agreed to transfer 3530 shares of Peerless General Finance and Investment Company (respondent no. 1) to the appellant by way of repayment of loan. But the transfer deeds were not C properly filled in nor were executed. Meanwhile respondent no. 2 received bonus shares and there arose a dispute between the appellant and respondent no. 2 with regard to entitlement to bonus shares. Ultimately, by compromise decree dated 28.11.1994, it was decided that D respondent no. 2 would retain as absolute owner the dividend of the entire shares upto the accounting year 1989-90 as part of the consideration for the settlement, besides a sum of Rs.10 lakh paid by the appellant by pay order dated 21.11.1994. Accordingly, the appellant on E 12.12.1994 lodged the transfer deed in respect of 14120 shares with Peerless for their transfer. Peerless refused to register the same on the ground that the transaction was in violation of provisions of the Securities Contracts (Registration) Act, 1956. The Company Law Board held F that the transfer of shares in favour of the appellant was contrary to ss.13 and 16 of the 1956 Act. The Company Judge of the High Court also held against the appellant. In the instant appeal, the questions for consideration · before the Court were: (i) "whether the provisions of G Regulation Act will apply to the shares of a public limited company which are admittedly not listed on any stock exchange?" and (ii) "whether the contract in question is, a spot delivery contract". H BHAGWATI DEVELOPERS PVT.·LTD. v. PEERLESS GEN. 549 FINANCE & INVEST. CO. LTD. Dismissing the appeal, the Court A HELD: 1.1 Section 13 of the Securities Contracts (Regulation) Act, 1956 lays down that contract in relation to securities in notified areas is illegal if made otherwise than between the members of recognized stock 8 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 s.13 of the Regulation Act. Further, the contract is not between the members of a recognized stock exchange. [para 10-11] [558-E; 559-C-E] C 1.2 Notwithstanding that the shares of Peerless, a public limited company in respect of which the appellant had sought rectification, are not listed in the stock exchange, if shares come within the definition of "securities" as defined u/s 2(h)(i) of the Regulation Act, D the indictments contained in s.13 would apply. The Regulation Act was enacted to prevent "undesi
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