Introduction
The Supreme Court of India in its judgment given on July 15, 2013 in the matter of Bhagwati Developers Pvt. Ltd v. Peerless General Finance & Investment Company Limited (“said case”) held that shares of public limited company not listed in the stock exchange is covered within the ambit of Securities Contract (Regulation) Act, 1956. (“SCRA”).
Substantial Question of Law
In the said case, Supreme Court, inter alia had to determine on the issue as to whether the provisions of SCRA will apply to the shares of a public limited company which are not listed on any stock exchange?
Applicable law & Issue
Clause (h) of Section 2 of the SCRA provided an inclusive definition of securities to include 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. For shares of a public company to come within the definition “securities”, it has to be “marketable” in nature. However, the term marketable is not defined under SCRA.
Ruling of Supreme Court
The apex court held that marketability meant capability of being bought and sold in a market, irrespective of the market‘s size and number of persons willing to purchase such shares. The court equated marketability with free transferability. As the shares of a public company, whether listed or unlisted is freely transferable, SCRA would apply to securities of even an unlisted public company. The Court relied upon a judgment24 passed by it in 2010, in which it had held that the definition of securities under SCRA did not make any difference between listed and unlisted securities.
Analysis
In question whether an unlisted public company is falls within the purview of SCRA had also come up before the Bombay High Court in the case of Brooke Bond India Ltd v. UB Ltd and the Calcutta High Court in the case of East Indian Produce Ltd , while the Bombay High Court ruled that SCRA did not govern the transaction of shares of an unlisted public company, the latter differed from the said view of Bombay High Court.
However, the object of SCRA, as evident from its Statement of Objects is to provide for the regulation of stock exchanges and of transactions in securities dealt in on them a view to preventing undesirable speculation in them.
This may lead to an inference that unlisted companies may not fall within the ambit of provisions of SCRA as SCRA was legislated to regulate the securities dealt in or on a stock exchange only, which is the market where securities are bought and sold in light of the aforesaid object and other provisions of SCRA in general which have reference to stock exchanges only.
About Bulwark Solicitors
Bulwark Solicitors is a law firm pioneered by Solicitor Chirag Sancheti and Advocate Deep Shridharani. The firm has expertise in the areas of both Litigation and non-Litigation. Under the non-litigation Law practice, the firm practices in the areas of Corporate Law, Intellectual Property Law, Bankruptcy & Insolvency Law, Competition Law, Real Estate and Conveyancing and DTAA Advisory. Further, under Corporate Law area, we practice Company Law, Securities Law, Mergers and Amalgamations, Private Equity and Venture Capital Investment Transactions, Legal Due Diligence and Foreign Exchange Management Law.