Unlisted shares and regulations
Endorsing the Calcutta High Court’s decision in the case, Bhagwati Developers Ltd vs Peerless General Finance & Investment Co, the Supreme Court has held that shares of an unlisted public limited company come within the definition of ‘securities’ and, therefore, fall under the purview of the the Securities Contracts (Regulation) Act 1956.
In this case, Bhagwati Developers (BD) had given a loan of around R39 lakh to one Tuhin Kanti Ghose for purchasing shares of Peerless. Pursuant to Tuhin transferring his 14,120 shares, including bonus shares, to BD by way of repayment of the loan, the latter had lodged transfer deeds in respect of shares with Peerless for transfer. However, the latter did not accede to the request on the ground that transfer of shares by Tuhin in favour of BD was in violation of the provisions of the Act.
Bhagwati moved the Company Law Board, which in 1998 dismissed its application holding that transfer of shares in favour of BD was against the provisions of the Act and, as such, illegal. It said that Peerless had rightly refused registration of transfer and the shares of a public limited company, which are not registered in any stock exchange, also come under the purview of the Act. CLB also rejected Bhagwati’s plea that the sales of shares is a spot delivery contract, saying consideration for sales of shares had been paid much after the date on which the sales of shares had taken place, thus the transaction does not come within the expression, “spot delivery contract” as defined under Section 2(i) of the 1956 Act, which was enacted to prevent “undesirable transaction in securities”. Both the HC and the apex court upheld by the CLB’s view, while dismissing the appeal of BD.
The Supreme Court in a huge batch of cases has rejected appeals filed by aspirants from various states seeking Indian Oil Corporation’s retail outlet dealership.
In these cases, the claim for ownership arose out of a 2002 policy for selection of retail outlet dealers of IOC. The aspirants having large plots of land had applied for outlets. The government of India approved IOC’s decision to run 83 outlets for which sites had been taken over and facilities were installed. However, the government in 2006 formulated a new policy whereby the concept of offering full dealership to land owners was abandoned and the aspirants were denied dealership.
Even the Supreme Court