National Consumer Disputes Redressal Commission
Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): C. Viswanath, Presiding Member, held that the complainant was not investing money in the share market exclusively for earning his livelihood, hence the same was he did not fall under the definition of Consumer.

Instant revision was filed by the petitioner under Section 21(b) of the Consumer Protection Act, 1986 against the order passed by the State Consumer Disputes Redressal Commission.

The revision petition was filed with a delay of 116 days.

Factual Background

The complainant/petitioner had purchased 2000 equity shares of Aravinda Remedies and 200 equity shares of Reliance Power Ltd. by making payments of Rs 13,700 and Rs 49,400 respectively. The OP delivered 1000 shares of Aravinda remedies instead 2000 shares amounting to Rs 6,850 leaving a refundable amount of Rs 6,850.

Further, OP delivered 200 shares of Reliance amounting to Rs 47,400 leaving a refundable amount of Rs 1,960. When the complainant enquired about his Demat Account, he came to know that 200 shares of Reliance Power Ltd. were transferred to the account of Ureka Stock and Share Broking Services without intimation to the complainant.

The OP also did not make a payment of Rs 27,480 being the differential price of the share which were credited to the Demat account of the complainant.

Aggrieved by the non-refunding of the aforesaid amount by the OP, the complainant filed the consumer complaint.

Complaint was partly allowed before the District Forum and on being aggrieved with the same, the complainant approached the State Commission, wherein the matter was remanded to District Forum and the forum dismissed the complaint as barred by limitation.

Further, the State Commission also dismissed the appeal since the transactions involved were commercial in nature.

Analysis, Law and Decision


State Commission had dismissed the complaint with the observation that the complainant was not a “consumer” as he was dealing in the share market.

As per Section 2(1)(d) of the Consumer Protection Act, 1986, a consumer is a person who buys goods or hires or avails services for consideration. The said section, however, carves out an exception by providing that the person who purchases goods or hires/avails services for the commercial purposes shall not be included in the definition of consumer.

Though Explanation to Section 2(1)(d) provides that if such services are availed exclusively for earning livelihood, he will be considered as a “Consumer”.

State Commission relied on the Judgment of this Commission in Steel City Securities Ltd. v. G.P. Ramesh, Revision Petition No. 3060 of 2011 and dismissed the complaint with the observation that the transaction was commercial in nature and the complainant was not a “consumer”.

Supreme Court’s decision in Morgan Stanley Mutual Funds v. Kartick Das, (1994) 4 SCC 224 was also cited, and the law laid down by the Supreme Court still holds good.

“33. Certainly, clauses (iii) and (iv) of Section 2(1)(c) of the Act do not arise in this case. Therefore, what requires to be examined is, whether any unfair trade practice has been adopted. The expression ‘unfair trade practice’ as per rules shall have the same meaning as defined under Section 36-A of Monopolies and Restrictive Trade Practices Act, 1969. That again cannot apply because the company is not trading in shares. The share means a share in the capital. The object of issuing the same is for building up capital. To raise capital, means making arrangements for carrying on the trade. It is not a practice relating to the carrying of any trade. Creation of share capital without allotment of shares does not bring shares into existence. Therefore, our answer is that a prospective investor like the respondent or the association is not a consumer under the Act. Q. 2: Whether the appellant company trades in shares?”

Hence, the complainant was not a consumer and the state commission had passed a well-reasoned order. [Baidyanath Mondal v. Kanahaya Lal Rathi, 2022 SCC OnLine NCDRC 62, decided on 29-4-2022]

Advocates before the Commission:

For the Petitioner: Mr Sahej Uban, Advocate with Petitioner in Person

For the Respondent: Mr Kanhaiya Lal Rathi (Respondent No.3 in person and

AR for Respondents Nos. 1 & 2)

Case BriefsSupreme Court

Supreme Court: While rejecting an appeal to quash proceedings under Section 138 of the N.I. Act, 1881 at pre-trial stage, the Division Bench comprising of K.M. Joseph and Hrishikesh Roy*, JJ., held that when there is legal presumption, it would not be judicious for the quashing Court to carry out a detailed enquiry on the facts alleged, without first permitting the trial Court to evaluate the evidence of the parties.

The Bench upheld the impugned judgment of Delhi High Court wherein the High Court had – while acting as a quashing court under Section 482 of CrPC – refused to quash proceedings at pre-trial stage. The Bench observed,

“The quashing Court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested.”

Factual Backdrop

Evidently, the complainant invested a substantial sum in the appellant’s company, however as some dispute arose between them, the parties decided that the invested money would be returned to the complainant and the shares allotted to the complainant will be proportionately transferred to the appellant. Pursuant to such compromise, the four cheques were issued by the appellant, which on being presented by the complainant, got dishonourned due to insufficient fund. Consequently, proceedings under NI Act came in picture.

Submissions of the Parties

The appellant argued that without satisfying the essential ingredients for the offence under Section 138 of the N.I. Act to the effect that the dishonoured cheque received by the complainant was against “legally enforceable debt or liability”, the criminal process could not have been issued. According to the appellant, the cheques in question were issued as “security” for buyback of shares and not in discharge of any “legally recoverable debt” and therefore they could not have been prematurely presented to the bank and should have been presented for encashment only after transfer of the complainant’s shareholding in the appellant’s company.

On the contrary, the complainant contended that when the cheques were issued and the signatures thereon were admitted, the presumption of a legally enforceable debt would arise in favour of the holder of the cheque. The complainant argued that the appellant should first pay and then as per the usual practice in the trade, the shares would be transferred to the appellant in due course within the time permitted by law.

Analysis and Conclusion

In HMT Watches Ltd. v. M.A. Abida, (2015) 11 SCC 776, and in Rajiv Thapar v. Madan Lal Kapoor, (2013) 3 SCC 330, it has been held that unless the Court is fully satisfied that the material produced would irrefutably rule out the charges and such materials being of sterling and impeccable quality, the invocation of Section 482 Cr.P.C power to quash the criminal proceedings, would be unmerited.

The Bench opined that when there is legal presumption, it would not be judicious for the quashing Court to carry out a detailed enquiry on the facts alleged, without first permitting the trial Court to evaluate the evidence of the parties. The quashing Court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested. The Bench observed,

“The consequences of scuttling the criminal process at a pre-trial stage can be grave and irreparable.”

The Bench stated that at any rate, whenever facts are disputed the truth should be allowed to emerge by weighing the evidence. Otherwise, the accused may get an un-merited advantage in the criminal process. Hence, the Bench held that when the cheque and the signature were not disputed by the appellant, the balance of convenience was in favour of the complainant/prosecution and the accused will have due opportunity to adduce defence evidence during the trial, to rebut the presumption.

In the light of above, the Bench reached to following findings:

  1. In shares transactions, there is a time lag between money going out from the buyer and shares reaching to the seller.
  2. The burden of proving that there is no existing debt or liability, is to be discharged in the trial.
  3. The legal presumption of the cheque having been issued in the discharge of liability must also receive due weightage.
  4. In a situation where the accused moves Court for quashing even before trial has commenced, the Court’s approach should be careful enough to not to prematurely extinguish the case by disregarding the legal presumption which supports the complaint.

Consequently, the Bench held that when the proceedings are at a nascent stage, scuttling of the criminal process is not merited. Hence, the impugned judgment was upheld as the same was found to be rendered by applying the correct legal principles.

[Rathish Babu Unnikrishnan v. State (NCT of Delhi), 2022 SCC OnLine SC 513, decided on 26-04-2022]

*Judgment by: Justice Hrishikesh Roy

Appearance by:

For the Appellant: Krishnamohan K., Advocate

For the Complainant: K.M. Nataraj, ASG and Rebecca M. John Senior Counsel

Kamini Sharma, Editorial Assistant has put this report together

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal, Mumbai (SAT): The Coram of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) and Meera Swarup (Technical Member) expressed that,

“A statute after its repeal is completely obliterated as it had never been enacted. The effect is to destroy all inchoate rights and all causes of action that may have arisen under the repealed statute.”

Factual Background

The appellant made an allotment of 76,50,000 equity shares on a preferential basis and applied to the Stock Exchange for listing of the said shares under the ICDR Regulations, 2018. Further, the NSE by the impugned order imposed a fine of Rs 5, 57, 168 on the ground that there was a delay of 23 days in applying for listing of the shares and consequently as per Regulation 108(2) of the ICDR Regulations, 2009 read with SEBI Circular, an issuer was required to make an application to the Exchange for listing of the shares within 20 days from the date of the allotment.

Similarly, the appellant made an allotment of 51,30,000 equity shares on a preferential basis and applied to the Exchange for listing of the said shares. NSE imposed a fine for making delayed applications by 19 days.

Analysis, Law and Decision

Tribunal observed that the 2009 Regulations were repealed on September 11, 2018, on which date the new Regulations of 2018 came into force. However, the Circular issued under the 2009 Regulations was not rescinded/repealed and continued to remain in force by virtue of Section 24 of the General Clauses Act.

“The consequences of repeal of a statue is very drastic.”

Coram stated that leaving aside the cases where proceedings were commenced, prosecuted and brought to finality before the repeal, no proceeding under the repealed statute could be commenced or continued after the repeal.

Further, elaborating the above, the Tribunal added that the repeal of a law takes effect from the date of repeal and the law repealed remains in operation for the period before its repeal without assistance of any saving clause for transactions past and closed.

“Saving clauses are introduced in the Acts/ Regulations which repeal others to safeguard rights which, but for saving, would be lost. Section 6 of the General Clauses Act also plays the role of a savings clause.”

In Tribunals’ opinion, the words “anything done” under the repealed Act will also preserve the continuance of Rules and Bye-Laws or circulars as held in State of Nagaland v. Ratan Singh, AIR 1967 SC 212.

Saving Clause

Once a statute is repealed, the consequence is that the subordinate legislation made under the statute ceases to have effect after the repeal of the statute. However, this can be avoided by insertion of a saving clause providing to the contrary in the absence of a savings clause, Section 24 of the General Clauses Act 1897, provides for the continuance of any appointment, notification, order, rule, bye-law etc. made or issued under the repealed statute in so far as it is not inconsistent with the provisions re-enacted.

Additionally, the Tribunal stated that, the continuance of subordinate legislation under Section 24 of the General Clauses Act is subject to the qualification that it is not inconsistent with the provisions reenacted.

Hence, even though the Regulations 2009 had been repealed, the Circular of 2017 remained in force in view of Section 24 of the General Clauses Act and continued to remain in force.

Therefore, the listing application was required to be made before the stock exchange(s) within 20 days from the date of the issuance of the allotment.

Even though the impugned order refers to Regulation 108 of the 2009 Regulations by virtue of Clause 24 of the General Clauses Act would deem to apply to Regulation 104 of the 2018 Regulations.

The matter was concluded on finding no error in the imposition of fine made by the two stock exchanges. [Art Nirman Ltd. v. National Stock Exchange of India Ltd., 2022 SCC OnLine SAT 73, decided on 8-4-2022]

Advocates before the Tribunal:

Ms. Natasha Dhruman Shah, Advocate for Appellants.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Rashid Boatwalla, Mr. Aditya Vyas, Advocates for Respondent No. 1

Mr. Suraj Choudhary, Advocate with Mr. Mihir Mody, Mr. Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b K. Ashar & Co. for Respondent No. 2

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): The Coram of Santosh Kumar Mohanty (Whole Time Member) lifted restrictions imposed on 10 Entities who were alleged in insider trading, though the Tribunal added that the said relaxation was being granted subject to the outcome of appeal proceedings filed by SEBI against SAT Order before Supreme Court.

For conducting a preliminary examination in the scrip of Zee Entertainment Enterprises Ltd., SEBI’s purpose was to ascertain as to whether certain entities have traded in the said scrip while they were in possession of unpublished price sensitive information pertaining to audited financial results of ZEEL for the quarter ended on June 30, 2020, in contravention of the provisions of the SEBI Act read with PIT Regulations.

Pursuant to SEBI’s interim order, Entities in compliance with the direction issued therein, opened escrow accounts and deposited the proceeds as directed in the said order.

Analysis, Findings and Decision

Tribunal noted that the preliminary examination revealed prima facie that certain persons/entities traded in the scrip of ZEEL while they were in possession of UPSI about the Company and the genesis to the said observation was in the fact that Mr Bijal Shah, was holding an important post of Head of Financial Planning and Analysis, Strategy and Investor Relations and was also a designated person of ZEEL.

Further, Mr Bijal Shah was also noted to have been dealing with the aspects of financial performance and was part of all important meeting/discussion pertaining to the financial results of the Company and therefor was an insider under the PIT Regulations. He was also said to have been in connection with Mr Gopal Ritolia and Mr Jatin Chawla

Adding to the above, interim recorded that the trading pattern of the Entities during the UPSI period was marked by abnormal positions in the scrip of ZEEL and all of their trading positions were largely unidirectional during the UPSI period which were noticed to have been squared off substantially after the disclosure of the UPSI.

As per the Interim Order, Mr Gopal Ritolia and Mr Jatin Chawla were noticed to have started taking a bullish position in the scrip of ZEEL from the same day onwards, i.e., August 11, 2020, and have followed a similar trading pattern in the scrip of ZEEL during UPSI period as has been followed by the other Entities in the present proceedings.

The interim order following the doctrine of preponderance of probabilities prima facie observed that Mr Bijal Shah had apparently communicated the UPSI to Mr Jatin Chawala who in turn communicated the said UPSI to Entity 1 who further communicated it to Entity 1. The said entities were cousin brother, thereby enhancing the probabilities of sharing of the said UPSI based on which, trades were executed in the trading accounts of entities 3 to 9, wherein consistently bullish position was taken in the scrip of ZEEL.

In view of the above-stated chain of events and trading activities in the scrip of ZEEL, the entities were prima facie found to be in violation of relevant provisions of SEBI Act and PIT Regulations.

Further, this Coram noted that the entities have deposited a sum of Rs 14.22 crores in terms of the directions issued in the Interim Order.

Subsequent to such deposit of funds, the bank accounts of Entities have been unfrozen and restored to normalcy for all kinds of banking transactions.

“…considering the fact that in today’s age of technology with mushrooming applications that enable seamless calls and messages which provide service of end- to-end encryption assuring complete anonymity, it will be a simplistic assumption to state that the Entities would have communicated the UPSI with each other through the regular telephone calls only.”

Entities did not bring forward any document before the Tribunal warranting to interfere with the Prima Facie observations about their inter se connection and close relationship, made in the Interim Order.

In the present case, the UPSI was prima facie seen to have been received by the Entities from Jatin Chawla, who was further seen to have received it from a person Mr Bijal Shah, a senior official of the ZEEL who was integrally associated with the said price sensitive information of the Company.

“….even in the absence of any direct evidence, such matters of insider trading allegations are to be tested on the circumstantial evidence including the facts surrounding the conduct of parties and abnormal trading practices adopted by them which defy normal logic and business prudence. What is needed in such matters, is to appreciate from a factual matrix, the preponderance of probabilities of happening of such an event.”

The explanations and documentary evidence adduced before the Coram by the Entities to justify their action of indulging in those trades in the scrip of ZEEL during the UPSI period, did not carry adequate strength to dislodge the factual and circumstantial evidence mustered in the Interim Order to make a Prima facie charge of violations of PIT Regulations against them.

Tribunal gave liberty to the entities to submit all such justification before the fact-finding authority so as to justify that the trading behavior displayed by them in the scrip of ZEEL is normal and similar to the trading strategy adopted by them in various other scrips and that their trading strategy of 50-day Exponential Moving Average had been followed by them consistently in several other scrips as well.

While concluding, the Tribunal found that entities in the present matter were all regular and habitual traders and the UPSI which was received by the two cousin brothers Mr Amit B Jajoo and Mr Manish K Jajoo was immediately put to use for monetary gain in as many as seven trading accounts, all belonging to their family members, which glaringly exposed the propensity an illicit intent of the entities to commit violations of securities law.

Therefore, the restrictions on the Entities vide the interim Order deserves to be continued.

Though, keeping in view the pendency of an appeal on this subject matter before the Hon’ble Supreme Court of India and pending completion of investigation in the matter and with a view to remain in compliance with the order of the SAT issued in the case of the aforesaid five entities, Tribunal was inclined to grant similar interim reliefs to the Entities from the restrain imposed on them vide directions no. 106.1 and 106.4 of the Interim Order.

Lastly, the Tribunal remarked that, 

“It is however clarified here that the funds deposited by the Entities in an interest-bearing escrow account will remain in the said account with lien in favour of SEBI until further orders”

[Insider Trading in the shares of Zee Entertainment Enterprises Ltd., In Re., 2022 SCC OnLine SEBI 19, decided on 18-2-2022]

Case BriefsHigh Courts

Special Court, Bombay High Court: The Special Court (Trial of Offences Relating to Transfer of Securities Act, 1992) of A.K. Menon, J., rejected the claim of late Harshad S. Mehta over the shares forming the subject matter of the present case and allowed the widow (applicant) of one Radhey Shyam Aggarwal to approach the company concerned to satisfy that she is entitled to the transmission of such shares. The Court however stopped short of allowing the applicant’s prayer for certification of shares.


Instant application sought certification of shares filed by the applicant, resident of Kolkata.

As originally filed, respondent 1 is the Custodian, Respondent 2 is Tata Global Beverages Ltd., Respondent 3 is a Share broker, Respondent 4 was intended to be legal heirs of late Harshad S. Mehta.

The application filed was not correctly affirmed but merely signed by the applicant and therefore he was permitted to file a supplementary application. In April, 2021 a duly completed application was lodged.  A minor change was done with regard to the company whose shares the applicant claimed was now respondent 1, Jyoti Mehta legal heir of Harshad S Mehta was respondent 3 and the broker respondent 4.

Applicant impleaded her late husband as respondent 5 and the Calcutta Stock Exchange as respondent 6.

Applicant’s Case

The applicant stated that her late husband had purchased 500 shares of Tata Global Beverages Ltd. – respondent 2 from respondent 4 – a broker for consideration of Rs 26, 515. She relied upon photocopies of original share certificates, contract notes, bill/receipt issued by the broker and proof of payment. Further, in 1989, she claimed to have received 200 bonus shares of the company. Accordingly, the shareholding would have increased to 700 shares.

After her husband passed away in 1996, addressed a letter to the company requesting transmission of the shares held in the name of her husband to her name.

Registrar and Transfer Agents of the company informed the respondent that the shares in question formed part of 1,22,881 shares which a Harshad Mehta entity had apparently purchased before 8th June 1992 and accordingly the company informed the applicant that she should approach the office of Custodian.

Till 2010 applicant did nothing with respect to the above. In 2010, applicant addressed a letter to Registrar requesting the issuance of duplicate shares in the name of the applicant. The matter had been referred to the custodian and it was clarified that the 700 shares form a part of the 1,22,881 shares.

Once against till 17th September 2018, the applicant took no action and then again addressed a letter to the Registrar. Then the applicant claimed personal difficulties and sought the issuance of a dividend in her favour. Once again, the Registrar advised the applicant to approach the Office of the Custodian.

Further, the Registrar provided details of the bonus shares and split shares from the year 1986 to 2018 which were all held under the folio of her late husband.

In 2019, the Advocate for the applicant addressed a letter to the Custodian claiming that she is a lawful and bonafide holder of 15,750 shares, Processing of the shares and issuance of duplicate shares in favour of the client and requesting information on compliance of further formalities.

Custodian informed that the applicant had to submit several documents and file an application before the Special Court and in March 2020, the applicant wrote to the Custodian annexing certain documents while contending that the original share certificates were lying with the company.

In view of the above background, the applicant approached the Court seeking certification and claiming to be the sole owner.

Analysis, Law and Decision

The Court on perusal of the facts and circumstances of the present matter, expressed that it was not clear as to why the seller of shares would not affix the correct signatures if indeed he had sold the shares for consideration, for value received. It was not an inadvertent change in the signature, the difference in the signature was sought to be obvious and factual in each of these cases.

Moreover, in Court’s opinion, the applicant could not be faulted in her attempt to obtain transmission of the shares. No malafides were attributed to the applicant by the notified party.

If indeed the shares were purchased by benamidars there was no reason why the signatories would be improper. Moreover, if the shares were indeed purchased by the benamidars and those referred to in the affidavit in reply, surely the said parties would have come forward to claim those shares. What must be noted however is that if the shares were stolen how they could have reached the Registrar is a mystery. Assuming the theft did occur the persons responsible may have submitted forms with forged signatures.

Bench stated that the shares were not transferred yet and there was nothing on record to show that the original shareholder had sold the said shares or was paid consideration for the shares.

In view of the above background, the question that arises is:

Whether the shares were liable to be now “certified”?

Court stated that Mr Mehta’s version that Radhe Shyam Agarwal sold the shares forming the subject matter of the present application could not be established.

In Court’s opinion the fact that the shares were still in the name of Radhe Shyam Agarwal and there being no evidence that these were the shares that had been acquired by notified parties, there was no reason to deprive the applicant of those shares by the Custodian retaining control of the same.

Whether shares are required to be certified under the scheme of certification and to that extent the present application is different from the regular cases of certification that come before the Special Court?

Court expressed that, it would be sufficient if the Custodian gives up the objections to the proposed transmission of shares and it is left to the applicant to pursue the transmission of shares in her favour, if the company is satisfied with the bonafides of her application.

Further, the Bench stated that the Custodian cannot object to the transmission of share in view of the material placed before the Court clubbed with the fact that the original shares since benefited from accretions all of which were retained by Registrar there was no reason for the Custodian to retain his claim to the shares.

Elaborating further on the matter, Court explained that notified parties could not establish the contention that Radhe Shyam Agarwal had sold the shares and had not affixed his proper signatures on the share transfer form as a result of which the transfer stood rejected.

In the decision of Standard Chartered Bank v. Andhra Bank Financial Services Ltd., (2006) 6 SCC 94, it was held that in order to establish ownership mere possession of original share certificates would not lead to interference of ownership and in the facts of that case the party had been able to prove purchase of the securities on the basis of cogent evidence and therefore retain title to the same.

The only significant question in the present matter was whether Radheshyam Agarwal had sold the shares and the notified part had purchased the shares?

The above-said question casts a burden on the notified party to establish a bonafide purchase which had not occasioned in the instant matter.

There was no specific record to indicate that the shares that are now subject matter of the present application were purchased. The claim was merely on the basis of a communication dated 6-10-1999 whereby Harshad S Mehta had addressed a letter without prejudice to the Custodian seeking tracing and recovery of shares of Tata Tea Ltd. All it said was that the shares might have been purchased by the three brokerage firms M/s. Harshad S. Mehta, M/s. Ashwin Mehta and M/s. J. H. Mehta or any other related notified entities or family members directly or through outside brokerage firms.

Sufficient time had also gone by but there was no evidence to back up such a claim.

Therefore, Custodian cannot retain control over the shares or claim the said shares on behalf of the notified parties.

 Hence, Radhe Shyam Agarwal was seen to be the last holder of the subject shares.

The signatures on share transfer forms are admittedly not matching with that of Radhe Shyam Agarwal, the shareholder and hence the shares continued to be in the name of late Radhe Shyam Agarwal.

Calling the claim of the notified party to be a long shot, Court held that the applicant had prima facie established that the shares stood in the name of Radhe Shyam Agarwal and continue to be held in that name.

The direction was given to the Custodian o release the shares but short of certification.

Lastly, the Court stated that the applicant may approach the Company and satisfy them that she was entitled to the transmission of the said shares on such terms that the company may deem fit.

“Custodian shall not hold back the shares and they shall stand released from attachment.”

The following order was passed:

  • The Custodian shall convey to the company that he has no claim to the 15,750 shares presently forming the subject matter of the Sub Division Advice dated 3rd July, 2010 under Folio no. TFR0006641 under Share Certificate no. 00002527 in respect of share bearing distinctive no. 3954051 to 3969800.
  • The applicant is at liberty to approach the company for transmission of these shares subject to compliance of all requirements to be specified by the company and their Share Registrar and Transfer Agent.
  • The company Tata Global Beverages Limited and its Transfer agents are permitted to consider an application for transmission of shares if made by the applicant and subject to due compliance of all requirements of the company and the transfer agents.
  • It is made clear that the court has not “certified” these shares under the scheme of certification.

In view of the above application was disposed of. [Bimla Devi Agarwal v. Custodian, Miscellaneous Application (L) No. 49 of 2019, decided on 3-12-2021]

Advocates before the Court:

Mr Muttahar Khan i/b. Mr Sukrut Mhatre, Mr Jitendra Sarda and Mr Sanjay Jadhav for the Applicant.

Mr Gandhar Raikar a/w. Ms Shilpa Bhate i/b. M/s Shilpa Bhate Associates for the Custodian.

Mr Ashwin Mehta for the Notified party.

Case BriefsSupreme Court

Supreme Court: The 3-Judges Bench comprising of L. Nageswara Rao, Sanjiv Khanna, B.R. Gavai*, JJ., held that when parties deliberately put their agreement into writing, it is conclusively presumed that they intended the writing to form a full and final statement of their intentions, and one which should be placed beyond the reach of future controversy, bad faith and treacherous memory.

“It would be inconvenient that matters in writing made by advice and on consideration, and which finally import the certain truth of the agreement of parties should be controlled by averment the parties to be proved by the uncertain testimony of slippery memory.”

Factual Fulcrum

The partnership firm in question, i.e. M/s Selwel Combines was constituted in the year 1986 vide Partnership Deed dated 30-10-1992. As per the 1992 Deed, the plaintiff 1 was to have 50% share in the profits and losses of the partnership firm. It was however provided in the 1992 Deed, that if the plaintiff 1 fails to bring in an amount of Rs.50,00,000 as his capital contribution to the partnership firm on or before 31-03-1993, his share in the profits and losses of the partnership firm would be only to the extent of 10%.

Noticeably, vide the Deed of Amendment of Partnership dated 18-08-1995, the partnership firm was again reconstituted, whereby the plaintiff 2, son of the plaintiff 1, and defendant 6 to 11 were inducted as partners and defendant 12 to 16 were admitted to the benefit of the partnership firm. Learned counsel further submits that as per the 1992 Deed, the plaintiff No.1 was entitled only to 10% share in the profits and losses of the partnership firm since he failed to invest an amount of Rs.50,00,000/( Rupees Fifty lakh). By the 1995 Deed, the plaintiff No.2, who is son of the plaintiff No.1, came to be inducted and the 10% share of the plaintiff No.1 was to be divided amongst them. However, inadvertently, it came to be mentioned in the 1995 Deed that the plaintiffs will have 25% share each.


The instant suit was filed by the plaintiffs for rendition of accounts and for releasing a sum of Rs.5,48,06,729, being their 50% share in the profits of the partnership firm. The Trial Court had held that the plaintiffs together were entitled to 10% share in the profits and losses of the partnership firm till 18-06-2004, and that from 18-06-2004, they were expelled partners of the partnership firm. The appeal against the impugned order was dismissed by the Karnataka High Court.


Though the 1992 Deed had provided that the share of the plaintiff 1 in the profits and losses of the partnership firm was 50% and it will be reduced to 10% in the event the plaintiff 1 does not contribute an amount of Rs.50,00,000 towards capital of the partnership firm, there was no such stipulation in the 1995 Deed, as the 1995 Deed clearly provided that the plaintiff 1 and the plaintiff 2 would be entitled to 25% share each in the profits and losses of the partnership firm. The Bench observed that if it was the case of the defendants that the terms mentioned in the 1995 Deed were inadvertent or a mistake in fact, then the burden to prove the same shifted upon the defendants. The Bench remarked,

“The contention of the defendants, that the share of the plaintiff Nos. 1 and 2 in the profits and losses of the partnership firm, mentioned as 25% each, is by mistake and, in fact, is only 5% each, does not sound logical and reasoned. If it was by mistake or inadvertence, nothing precluded the defendants from rectifying the same between 1995 and 2004.”

The Bench opined that what had happened between 1992 and 1995 was exclusively within the knowledge of the parties as, though the plaintiffs had averred that an amount of Rs.50,00,000 was invested by the plaintiff in the intervening period, the same was denied by the defendants. Therefore, in view of Section 91 of the Evidence Act, the Bench held that the evidentiary value of the 1995 Deed would stand on a much higher pedestal, as against the oral testimony of the parties.

“The written contracts presume deliberation on the part of the contracting parties and it is natural that they should be treated with careful consideration by the courts and with a disinclination to disturb the conditions of matters as embodied in them by the act of the parties.”

Hence, the Bench concluded that Trial Court as well as the High Court had erred in holding that the plaintiffs together were entitled to only 10% share in the profits and losses of the partnership firm till 18-06-2004. However, with regard to the challenge of the appellants to their expulsion from the partnership firm the Bench held that perusal of clause 17 of the 1992 deed would reveal that the partners had right to expel an erring partner/partners on the grounds specified therein. Since the 1995 Deed did not have any conflicting provision, it was held that the clauses in the 1992 Deed, which are not superseded by the 1995 Deed, would still continue to operate.

In the light of the above, the Bench declared that the plaintiffs together were entitled to 50% share in the profits and losses of the partnership firm till 18-06-2004. [V. Anantha Raju v. T.M. Narasimhan, 2021 SCC OnLine SC 969, decided on 26-10-2021]

Kamini Sharma, Editorial Assistant has put this report together 

Appearance by:

For the Appellants: Advocate R. Basant

For the Defendants: Advocate Balaji Srinivasan

*Judgment by: Justice B.R. Gavai


Legislation UpdatesStatutes/Bills/Ordinances

The Government of Madhya Pradesh has amended the Madhya Pradesh Stamp Rules, 1942 vide circular dated August 13, 2021.

The Rules provides the entities that shall act as Ex-officio vendors in the state. The amendment provides that Ex-officio vendors under the Rules will include Banks, Financial Institutions, Post offices or such bodies where 51% shares are held by the Central Government or the State Government.


*Tanvi Singh, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): Maninder Cheema, Adjudicating Officer, imposed a total fine of Rs 80 lakh on eight entities for indulging in fraudulent trading activities in the shares of PMC Fincorp Ltd.

It was found by the regulator, that the entities created artificial demand in the PMC shares by continuously buying shares at increasing prices and then holding on to the shares purchased by them, thereby also reducing the shares held by the public.

The trades of the entities during the investigation period were found to be manipulative in nature, leading to an artificial price rise with the motive to provide exit to large shareholders who sold their shares at artificially inflated prices.

It was of the opinion that, “the fundamentals of the company did not justify the high prices and no prudent investor would continue buying at increasing prices unless motivated by some other consideration. The fact that the Noticees 1 to 8 were connected as established above leads one to conclude that the demand for shares was artificially created with a  view to causing an artificial increase in price.  The  Noticees purchased and continued to hold the shares, while at the same time buying at increasingly higher prices,  thus inducing an upward movement in price”.

It further found that Noticees 1 to 8 created an artificial demand in the scrip of  PMC  during the  IP by continuously buying shares at increasing prices and then holding on to the shares purchased by them, thereby also reducing the shares held by the public. And further noted the fall in the price of the scrip after the sustained buying.

Noticees 1 to 8 through their trading in the scrip manipulated the price of PMC in violation of Section 12A (a), (b), (c) of SEBI Act read with Regulation 3 (a), (b), (c), (d), 4 (1) and 4 (2) (a), (e) of PFUTP Regulations. And therefore, were liable for monetary penalty under Section 15HA of the SEBI Act. A  penalty  Rs 10,00,000/-(Rupees Ten Lakh only) each on Noticees 1 to 8i.e.Economy Suppliers Private Limited  (Noticee  1), Embassy Sales Private Limited  (Noticee  2), Seabird Distributors Private Limited (Noticee 3), Seabird Vincon Private Limited (Noticee 4),  Seabird Retails Private Limited (Noticee 5), Shivdarshan  Sales  Private Limited (Noticee 6), Famous Investment Consultants (Noticee  7)  and  Rolex Vinimay Private Limited  (Noticee 8) (Total penalty of Rs.80,00,000/-(Rupees EightyLakh only) was imposed.[PMC Fincorp Ltd., In re, ADJUDICATION ORDER NO. Order/MC/HP/2020-2021/10676-10683, decided on 26-02-2021]

Experts CornerSaakshya Law

A. Introduction – Historical background and context

The kernel of the legal regulation of a company’s authority to purchase its own shares – the power of  “buy-back”[1] – has, in English law, traditionally always been founded upon the legal system’s well-established imperative to protect, primarily, the rights and interests of creditors of the company – in other words, those who are “owed” by the company. Nowadays, those considered as creditors covers a much wider scope of persons than just secured creditors – ranging across a broad spectrum of persons from Government (including Revenue), through employees to unsecured or trade creditors.

This broadening of the types of creditors for whose protection mainly, the law as to buy-back is embodied in our statute, also underscores the historical reluctance of the common law to recognise the concept of a company being permitted to repurchase or buy-back its own shares.  This reluctance stems – in part, and from the past – from the common law’s hesitation to allow the consequential diminution of the capital of the company to potentially seriously impair, in most cases, the ability of the company to honour its debt-servicing obligations to those who have extended loans to the company based on their assessment of the long-term viability and continuing financial ability of the company to repay its debts; a critical aspect of the judicially developed, common law principle known as the “capital maintenance” rule – a subject which warrants a subsequent article and a fuller analysis of its own. Suffice it to say, that such a concept has, in this particular context, come to be embodied in the Indian statute as well.[2]

This need to prevent the company defeating its creditors by recourse to such means as repurchase of its own shares, has been most lucidly stated by Lord Justice Green in Guinness v. Land Corpn. of Ireland:

… In my opinion, it … follows that what is described in the memorandum as the capital cannot be diverted from the objects [of the company].  It is, of course, liable to be spent or lost in carrying on the business of the company, but no part of it can be returned to a member so as to take away from the fund to which the creditors have a right to look as that out of which they are to be paid.[3]

In the leading English case of Trevor v. Whitworth, the court was tasked with determining whether a claim by certain executors of a pre-deceased former shareholder, for the balance of the price of the shares of the company sold by them, back to the company prior to the initiation of insolvency proceedings, was valid – in other words, whether a company can validly and legally purchase its own shares.[4]

Lord Macnaghten summed up the position succinctly:

… If shareholders think it worth [their] while to spend money for the purpose of getting rid of a troublesome partner who is willing to sell, they may put their hands in their own pockets and buy him out, though they cannot draw on a fund in which others as well as themselves are interested. That, I think, is the law, and that is the good sense of the matter.[5]

 In summary, the issue was “whether it is competent for a limited company … to invest any portion of its capital in the purchase of a share of its own capital stock, or to return any portion [of such capital] … without following the course which Parliament has prescribed”.[6] The court appears to have reached the conclusion that, despite the memorandum of association of the company authorising the buy-back, such trading represented an indirect method of reducing the capital of the company, without recourse to the proper method of doing so, as permitted and indeed, sanctioned, by the English Companies Act then in force.[7]

English law also encapsulates what one may consider the “reverse of the coin” to that of buy-back; an allied principle that travels (at least as intended) in step with the former – the rule against “financial assistance”, which prohibits (in Section 678 of the English Companies Act, 2006) a public company (or its subsidiary) from giving financial assistance to a person for the acquisition by that person of the company’s shares, whether the assistance is given in advance of, or at the same as, the acquisition taking place. Such financial assistance encompasses (amongst other types, as specified in Section 677 of the English Companies Act, 2006) that given by way of gift, by way of guarantee, security or indemnity, and by way of loan or other such assistance where the provider’s net assets (in case it is a company) are reduced to a material extent by the granting of such assistance.

Crucially, unlike the rule against buy-back which we have seen, the rule against financial assistance was not developed by the 19th century Judges as part of the capital maintenance regime; but rather it was a statutory reform introduced in the early 20th century.[8]  As the leading English commentary on company law, wryly notes:

“The history of this rule does not constitute one of the most glorious episodes in British company law. The rationale for its introduction was under-articulated; it has proved capable of rendering unlawful what may seem from any perspective to be perfectly innocuous transactions; and it has proved resistant to a reformulation that would avoid these problems.”[9]

With this context and historical background in mind, we now therefore, turn to the statutory provisions in India and examine certain anomalous positions that emerge, under Indian law in particular, as regards the concept of financial assistance (crucially the extent of its coverage and application to private companies), as well as the indirect purchase of shares – the two central issues considered and analysed in this article.

B. Buy-back of its own shares

Section 67(1) of the Companies Act, 2013[10] prohibits companies limited by shares or by guarantee and having a share capital, from buying its own shares, unless the consequent reduction of share capital is effected under the provisions of the Act. As emphasised earlier, the intention behind such a seemingly blanket prohibition on a company purchasing its own shares is to preserve and protect, and not dissipate, the share capital of the company as representing the pool of funds against which (amongst others), the creditors of the company may seek satisfaction of the debts or the claims owed to, or in favour of, such creditors by such company – the “capital maintenance” rule, with the exception of certain permitted purchases of its own shares [a concept that in Section 68(1) is defined as a “buy-back”[11]], as provided for in, and in accordance with, the conditions and restrictions stipulated in Section 68.

In addition to the permitted buy-back exception mentioned above in Section 68, a company may purchase its own shares by ensuring that the resultant reduction of its share capital due to such purchase is in accordance with and subject to the conditions under Section 66[12] relating to share capital reductions. It has been made clear, judicially, that the conditions applicable to the formal process of reducing a company’s share capital in the statute cannot be imported into or made applicable to a buy-back, and vice versa; the two statutory concepts and processes operate in independent fields.[13] In furtherance of these purposes, the Companies Act, 2013 specifically prohibits under Sections 67 and 70, any other buy-back or purchase by a company of its own shares (what the headnote to Section 70[14] calls, “prohibition of buy-back in certain circumstances”) – the impact of which provisions we will further study and examine below.

C. Financial assistance

Section 67(2)[15] prohibits public companies from providing, whether directly or indirectly, any “financial assistance” such as the giving of any loans, guarantees or the provision of any security or otherwise, for the purpose of, or in connection with, a purchase or subscription made or to be made, by any person of (in the case of secondary purchase), or for (in the case of primary subscription), such company’s shares (or, of the shares in its holding company). It is pertinent to note that the statute itself, and not any delegated legislation thereunder, specifically carves out and excludes private companies from the prohibition in Section 67(2), on the granting by a company of such financial assistance to any person for the acquisition of such company’s shares.[16]

Admittedly, the Ministry of Corporate Affairs in its Notification dated 5-6-2015, specified certain exemptions or exceptions available to private companies, including the exemption of private companies from the applicability of the provisions of Section 67, subject however, to the fulfilment of the following conditions:

(a) The company shall have no shareholder which is a body corporate.

(b) Borrowings of the company from banks, financial institutions or body corporate should not exceed twice the amount of its paid-up share capital or INR 500 million, whichever is lower.

(c) There shall be no subsisting defaults in repayment of such borrowings at the time of the making of any transaction under Section 67.

This is an unfortunate situation – leading to an unhappy and uncertain outcome, importantly for purposes of this article, as regards the extent and scope of the coverage and application of the financial assistance prohibition. Without the 2015 notification, the statute in Section 67(2) is crystal clear – only public companies are prohibited from granting financial assistance to other persons to acquire its own shares. The 2015 notification muddies those waters by purportedly exempting private companies from this prohibition, provided they satisfy the above conditions – a conditional exemption which at the threshold at least, is not warranted by the express provisions of Section 67(2).

On the face of it, the conclusion is perhaps inescapable that, as the provisions of Section 67(2) of the parent legislation itself, which specifically and expressly provides that the prohibition on the granting of such financial assistance for the purpose of the purchase of its shares only applies to public companies, the section in the statute must prevail over any delegated legislation such as the 2015 notification – on the well-settled principle of statutory interpretation that subordinate legislation cannot trump or go beyond the statute itself; especially by including applicability of provisions with exemptions based on certain conditions to certain types of companies, already expressly excluded (or, at the very least, not included) in the principal legislation.

From a critical analysis point of view, however, it behooves us to ask and seek to answer the question whether the 2015 notification goes beyond its legal remit, in providing such a conditional exemption, as regards the applicability of the prohibition in Section 67(2) to private companies.

The answer to that conundrum must lie in the interpretation of Section 462(1) – a provision which did not exist in the Companies Act, 1956; and, therefore, its introduction in the 2013 statute must be treated as deliberate.[17] This statutory provision empowers the Central Government in exercise of its admittedly delegated or subordinate powers, to direct by notification in the public interest, that any of the provisions of the statute shall not apply to such class or classes of companies; or, shall apply to such class or classes of companies, with such exceptions, modifications and adaptations as may be specified in such notification itself.

At the outset, Section 462 appears to be what some would call a “Henry VIII” clause in primary legislation.[18] While a full discussion on what such “Henry VIII” clauses are, or what they purport to do, or what their ramifications are, falls beyond the scope of this article, it is pertinent to mention that the Notes on Clauses of the Companies Bill, 2011 (to Clause 462, which was ultimately adopted as Section 462, in the 2013 statute) records that “this clause gives power to [the] Central Government by notification [to direct] that any provisions of this Act … apply or not … apply to such class or classes of companies as specified in the public interest”.[19]

In light of the foregoing discussion, the crux of this issue to our mind, to reiterate, turns on a plain reading of Section 462(1), read with the 2015 notification, insofar as it relates to the treatment of Section 67(2) as regards private companies. Framed thus, two key points of analysis emerge:

Firstly, the 2015 notification, as regards the application of Section 67, is structured as an exemption [that does not by the express words of Section 461(1)(a), permit any qualifications to such exemptions] and not as an extension to application [which alone carries with it, under Section 462(1)(b), the right to prescribe exceptions, modifications and adaptations] – in other words, while exempting private companies from the provisions of Section 67, such an exemption could only properly in law, be a blanket one, which is tautological given that the principal statute in Section 67(2) anyways so expressly exempts private companies from its application.

Secondly, is it at all possible that the 2015 notification has an error in referencing?  In that, the exemption sought to be made is to Section 67(1) – while the notification simply states Section 67.  The logic for this stems from the fact that, since Section 67(2) anyways excludes in its very terms, all other companies other than public companies, the only other provision in Section 67 that is capable of receiving such an exemption is Section 67(1) – although the validity of even that exemption, assuming it is correct, remains to be judicially tested, in particular; as is the 2015 notification, more generally. As an aside, the 2015 notification stipulates the condition that no other body corporate has invested any monies in the share capital of the private company – a condition that appears to apply only when an overseas corporation and not another Indian company, has invested in the equity share capital.[20] The logic for such a stipulation is also unclear.

Our conclusion tends towards the view that the Central Government in exercise of its admittedly delegated or subordinate powers under Section 462(1), cannot properly in law direct either:

(i)      the non-applicability to private companies of a provision of the principal statute [such as for instance, Section 67(2)], which is anyways by its very express terms mandated by Parliament itself, as not being applicable to such private companies; or

(ii)     the applicability of the provisions of Section 67(2), subject to such exceptions, modifications or adaptations as the Central Government may specify, to private companies, since such entities are by the principal statute itself, already exempt therefrom;

and, as a result, the stipulated conditions of the 2015 notification above, have we strongly believe, no basis in law for the present purposes – that, private companies are entitled to render financial assistance in terms of Section 67(2), regardless of the 2015 notification and its conditions or stipulations.

D. Other purchases of its shares; indirect purchases

This article does not examine or analyze the buy-back provisions of Section 68 (and the associated rules), in and of themselves – that again is to be left to another occasion; and, indeed, forms the subject-matter of a plethora of other articles. We are concerned here with indirect purchases. Section 70(1) prohibits inter alia the purchase by a company – and this prohibition applies across all types of companies – of its own shares either directly or indirectly, through a subsidiary company (including its own subsidiary company) or through any investment company (or group of investment companies).

The provisions of Section 70(1) need careful reading and analysis – it is clear the statute is seeking to impose a condition that the purchase by the subsidiary or the investment company (for ease of reference, let us call that as the “acquiring company”) of the shares of its parent company (or any other company; for ease of reference, we will refer to that as the “target company”), must involve the acquiring company purchasing the shares of the target company, in its (i.e. the acquiring company’s) own name, and not as a nominee of, nor for or on behalf of, the target company – in other words, it is important that the shares so purchased are held as of the record and beneficially by the acquiring company, without any beneficial interest of the target company in such shares, in order to obviate the impact of the prohibition contained in Section 70(1).

There is, however, an aspect of Section 70(1) that is troubling in the way it is drafted.  The reference to “own subsidiary company” is unclear – for that term is neither defined or used elsewhere in the statute, nor does its usage sit well in sub-clause (a) of the provision.  Surely, it was not intended that the subsidiary company of any other parent company falls within the prohibition on the indirect purchase of shares through any subsidiary, including one’s own subsidiary. The intention may have been to refer to direct subsidiary companies, where the holding company itself holds the required shareholding, and not such subsidiaries which are next level subsidiaries arising out of a chain holding.[21]

What is clear though, is that the proscription of Section 70(1) lies in the indirect purchase of a company shares “through” any subsidiary or investment company[22] – terminology that is also used in Section 19(1) where a company (whether by itself or through its nominees) cannot hold shares in its holding company (of course, excepting situations where such shares were acquired prior to the company becoming such a subsidiary of its parent company).  Section 70(1) therefore imposes no blanket ban on indirect purchase – only those that are beneficially acquired for the target company, which is prohibited.[23]

It appears that the scheme of the Act as regards the issue of the permitted purchases by a company of its shares is a threefold one – firstly, that any company’s buying of its own shares can only be achieved legally either through the routes of permitted share capital reductions (Section 66) or permitted buy-backs (Section 68); secondly, that public companies alone are prohibited from providing “financial assistance” in connection with or for the purposes of a purchase by a company of its shares by any person [Section 67(2)], as dealt with in detail above; and thirdly, that any company is prevented, by means of a nominee relationship or through any beneficial interest by or on behalf of the company itself, from indirectly purchasing its own shares through a subsidiary or an investment company.

Before parting with this issue, one must examine the prohibition on the purchase by a company of its own shares, indirectly through an investment company. Explanation (a) to Section 186 defines the term “investment company” (albeit only for the purposes of that section), as a company whose principal business is the acquisition of shares, debentures or other securities, or a company will be deemed to be principally engaged in such business, if its assets in the form of investment in shares, debentures or other securities constitute not less than 50% of its total assets, or if its income derived from such investment constitutes not less than 50% as a proportion of its gross income. The determination of an “investment company” is therefore, a factual or objective one – in any event, even if the acquiring company is treated as an investment company, the prohibition on indirect purchase by a target company of its own shares in Section 70(1) is only relevant or arises where there exists a nominee or a beneficial relationship between the acquiring company and the target company.

E. Conclusion

This article has considered two issues of interpretation that arise in the context generally of shares buy-back – indirect purchases through or using the vehicles of subsidiaries or investment companies, and the financial assistance rule’s coverage to private companies. Clearer and more specific drafting (in the case of indirect purchases) and greater tabs on delegated legislation (when it comes to the financial assistance rule) would have obviated both issues – and made life much more certain and stable for contracting parties. Perhaps what is required is to suppress the mischief and advance the benefits that both these constructs truly provide to corporate India.

By Siddharth Raja, Partner at Saakshya Law 

Note: The article and its contents do not constitute legal advice, and readers are urged to seek specific legal advice and inputs to their particular issues, facts and circumstances.

[1] See, Ss. 77-A, 77-AA and 77-B, as first introduced and inserted into the Companies Act, 1956 by the Companies (Amendment) Act, 1999.  These provisions have largely been retained as Ss. 68, 69 and 70, respectively, of the Companies Act, 2013, other than some textual modifications.

[2] See, S. 68(6) of the Companies Act, 2013 [analogous to S. 77-A(6) of the Companies Act, 1956], requiring every company proposing a buy-back to file with the Registrar and the Securities and Exchange Board of India, a declaration of solvency in specified form and content, to the effect that its Board of Directors has made a full inquiry into the affairs of the company, as a result of which they have formed an opinion that the company is capable of meeting its liabilities and will not be rendered insolvent within a period of one year from the date of such declaration.

[3] See, (1882) 22 Ch D 349, 375; emphasis supplied. Cited and quoted with approval in the leading English case on buy-back, namely, Trevor  v. Whitworth, (1887) 12 App Cas  409, by both Lords Herschell (at pp. 419-20) and Macnaghten (at p. 433).

[4] (1887) 12 App Cas 409: the company’s memorandum of association did not authorise the company to purchase its own shares, although several articles in its articles of association, did – one article empowered the Board to purchase “any share” at such price “not exceeding the then marketable value thereof”.  The decision on merits proceeded only on the general question of whether the company did have a power of repurchase in the first place – the court unanimously holding that it did not, and thereby Lord Herschell (at p. 414) and Lord Watson (at p. 421), in particular, avoiding the question whether the purchase had indeed taken place in accordance with the articles of association.

[5] (1887) 12 App Cas 409, 436; emphasis supplied.  See also, Lord Watson (at p. 430) and Lord Herschell (at p. 417).

[6] (1887) 12 App Cas 409, 432.

[7] See, Lord Herschell (at p. 417) and Lord Watson (at p. 423).  See also, Lord Macnaghten: “When Parliament sanctions the doing of a thing under certain conditions and with certain restrictions, it must be taken that the thing is prohibited unless the prescribed conditions and restrictions are observed.” – in an obvious reference to the statutory procedure for the reduction of capital.

[8] See, Paul L. Davies QC, et al.; Gower’s Principles of Modern Company Law; 10th edn., South Asian Edition, Sweet & Maxwell, 2018, at p. 333.

[9] Id., at p. 332.

[10] Analogous to S. 77(1) of the Companies Act, 1956.

[11] Earlier, S. 77-A(1) of the Companies Act, 1956.

[12] Analogous to S. 100 through S. 105 of the Companies Act, 1956.

[13] See, SEBI v. Sterlite Industries (India) Ltd., 2002 SCC OnLine Bom 1411 : (2003) 113 Comp Cas 273, A.P. Shah, J., at para 22 – albeit, while dealing with the provisions of the erstwhile Companies Act, 1956, which specifically in S. 77(1), called out the provisions of Ss. 100 to 104 or of S. 402, to which the reduction of capital was to be subject to.

[14] Earlier, S. 77-B of the Companies Act, 1956.

[15] Analogous to S. 77(2) of the Companies Act, 1956.  The erstwhile provision also covered within the prohibition on financial assistance a private company which is a subsidiary of a public company – a concept that has been done away with in our new law, and a subject worthy of an independent, separate and holistic analysis by itself.

[16] See, as and by way of contrast: erstwhile S. 90(2) of the Companies Act, 1956 statutorily exempted pure private companies (i.e. which are not subsidiaries of public companies) from the application of erstwhile Ss. 85 to 89; a position that is no longer extant in the Companies Act, 2013, unless specifically exempted by subordinated rules under the statute.

[17] See, Ss. 620 and 620-A through S. 620-C, of the erstwhile Companies Act, 1956 – which inter alia only empowered the Central Government to modify the statute in its application to certain specified types of companies (such as government companies); or, to companies in certain parts of the country (like Jammu & Kashmir), but which did not grant far-reaching powers to exempt any class or classes of companies, as is contained in S. 462(1) of the Companies Act, 2013.

[18] See, generally, Priya Garg and Amrita Ghosh, The Henry VIII Clause: Need to Change the Colour of Our Shades, CALQ (2017) Vol. 3.3, accessed on 10-2-2021.

[19] See, Sudipto Sarkar and Arvind P. Datar, Chief Editors; A. Ramaiya: Guide to the Companies Act; 19th edn.

[20] See, S. 2(11), as to the definition of  “body corporate” – as contrasted with S. 2(20), as to the definition of  “company”.

[21] See, S. 2(87) as to the definition of “subsidiary”, read with the Companies (Restriction on Number of Layers) Rules, 2017.

[22] Note the difference in drafting – ordinarily shares are acquired “by” a company; not “through” – the latter’s usage thereby indicates beneficial interest, where the acquisition must be one on behalf of the other.

[23] Prof Gower draws the connection between the financial assistance rule and indirect purchases, thus (emphasis supplied): “If a company lends £100,000 to someone to purchase its shares from another investor and that person does not act as a nominee for the company but acquires the shares beneficially, the company’s share capital, share premium account and capital redemption reserve will not be in any way altered by that loan or the subsequent purchase of shares.”  See, supra note 8, at p. 333.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal (SAT): Justice Tarun Agarwala, Presiding Officer, Dr C.K.G. Nair  Member and Justice M.T. Joshi, Judicial Member affirmed the impugned order and allowed the appeal partly.

The present appeal has been filed against the order dated August 31, 2020, passed by the Adjudicating Officer i.e. AO of Securities and Exchange Board of India i.e. SEBI imposing a penalty of Rs. 8 lakh for violation of Regulation 3 and 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 i.e. PFUTP Regulations.

A show-cause notice was issued in the trading of the scrip of Malabar Trading Company Ltd. i.e. ‘MTCL’. It was alleged that the appellant had contributed to more than 5% of the total market positive LTP through 63 trades for a total quantity of 4304 shares during patch-1. It was further alleged that the appellant placed sell orders in the range of 1 to 500 shares when the respective buy order quantity was in the range of 100 to 3400 shares especially when more shares were available, inspite of which the appellant on most of the dates traded only on one share. It was, thus, alleged that the appellant was manipulating the share price and created a misleading appearance of trading in the scrip by such trades thereby violating Regulation 3 and 4 of PFUTP Regulations. The AO found that the appellant had no bonafide intention to sell when sufficient buy orders were available and despite having adequate holdings in the scrip of MTCL sold only one share per transactions which resulted in the creation of positive LTP and thus created a false misleading appearance of trading in the securities market. The AO, thus, held that such trading pattern amounts to manipulation of the price of the scrip.

The Tribunal observed that except on three occasions the appellant only sold one share at a time on a daily basis. This trading pattern created a misleading appearance with the intention to manipulate the market if not the price. Thus, even if there is no connection with the buyer the trading pattern shows a concerted effort to manipulate the market and therefore it was observed that the appellant was not acting as a genuine seller. It was further observed that appellant had no bonafide intention to sell because inspite of sufficient buy orders being placed with abundant quantity being available in the market the appellant was only placing sell orders of one share at a time. This clearly shows his intention of manipulating the market for vested reasons.

The Court thus held that the finding of the AO that the appellant had violated the provisions of Regulation 3 and 4 of PFUTP Regulations does not suffer from any error of law. The Court further held “in the given circumstances when the appellant was only selling miniscule quantity the penalty of Rs. 8 lakh is harsh and excessive and does not commensurate with the alleged violations. Given the surrounding circumstances we are of the opinion that the penalty of Rs. 1 lakh in the given circumstances shall be just and sufficient.”

In view of the above, the appeal was allowed and impugned order affirmed.[Tanuj Khandelwal v. SEBI, 2021 SCC OnLine SAT 78, decided on 04-01-2021]

Arunima Bose, Editorial Assistant has put this story together

National Consumer Disputes Redressal Commission
Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): Justice V.K. Jain (Presiding Member) addressed the question of who can be considered a consumer under Section 2(1)(d) of Consumer Protection Act in light of trading of shares.

Complainant opened Demat Account with respondent 1 in India Infoline Ltd. Respondent 3 an employee of Respondent 1 carried out unauthorised trading of shares in his Demat Account without his consent and caused heavy losses to him.

The above-stated incident was brought to the notice of respondents 1 and 2, but they did not address the complaint.

After a loss of Rs 55,000, complainant tried to close the account but was not allowed to do so and further was carried out by respondent 3 from his Demat Account without his consent, causing him a loss of Rs 1,72,020.

In view of the above complainants approached the District Forum concerned by way of consumer complaint seeking the compensation of the above-referred amount.

Respondent 1 stated that complainant had entered into a mutual agreement with respondent 3 allowing him to trade into his account and on coming to know this, respondent 1 terminated the services of respondent 2 and 3.

Aggrieved with District Forum’s decision, an appeal was filed with State Commission wherein the appeal was allowed and the complaint was dismissed.

Analysis and Decision

Who can be said to be a consumer?

The above-stated question was considered in Springdale Core Consultants (P) Ltd. v. Pioneer Urban Land and Infrastructure Ltd., CC No. 349 of 2017, decided on 16-03-2020.

 “…Trust was not a consumer within the meaning of Section 2(1(d) of the Consumer Protection Action, which excludes a person who obtains goods and services for a commercial purpose. It was held by this Commission that providing hostel facilities to the nurses was directly connected to the commercial purposes of running the Hospital and was consideration for the work done by them in the hospital.”

Bench observed that there was no evidence of the complainants trading in the shares on a large scale. Complainants were stated to be in service though, in the account opening form, they had claimed to be in business.

No evidence or even allegation of the complainants was found carrying out large scale trading in stocks and shares.

If a person engaged in a business or profession other than regular trading in shares, open a Demat Account and occasionally carries out trading in shares, it cannot be said that the services of the broker were hired or availed by him for a commercial purpose, the scale of such trading by a casual investor being very low. Such a person cannot be said to be in the business of buying and selling shares on a regular basis.

In view of the above, the Commission held that the complainants were consumers within the meaning of Section 2(1)(d) of the Consumer Protection Act.

Whether the trading by respondent 3 in the Demat Account of the complainants was done with the consent of the complainants or it was done unauthorizedly without their consent and without instructions from them?

Commission on perusal of the letter dated 20-10-2009, stated that respondent 3 was trading without instructions from the complainants and that is why he promised to the complainant that he would be responsible in case his losses were to increase.

With regard to the alleged private agreement between respondent 3 and complainant, no evidence was found.

Hence, in view of the above-stated discussion, Commission held that respondent 3 has caused loss to the complainant by unauthorised trading in his Demat Account, therefore he is responsible to compensate the complainant.

Being the employer of respondent 3 and being the broker with whom the Demat Account was opened, respondent 1 was equally liable to compensate the complainants.[Vaman Nagesh Upaskar v. India Infoline Ltd., 2020 SCC OnLine NCDRC 469, decided on 28-10-2020]

Counsel for the Petitioner: Advocate Astha Tyagi

Counsel for the Respondent 1: Advocate Ajit Rajput

Case BriefsCOVID 19High Courts

Bombay High Court: K.K. Tated, J., granted ad interim relief to Rural Fairprice Wholesale Ltd. from selling the pledged equity shares as the share market has collapsed due to COVID-19 and would have resulted in huge loss to the plaintiffs.

In the present matter, applicant’s sought injunction against respondent’s notice dated 17-03-2020 and sale deed notice dated 18-03-2020 with regard to shares pledged by them with defendant 1 by Debenture Trust Deed.

Senior Counsel for the plaintiffs submitted that outstanding loan payable to defendant 2 of about Rupees 610 crores.

It has been stated that, as per the debenture trust deed as stated above 8% of equity shares was pledged. On the date of debenture trust deed, market value of share was Rs 350 per share.

Due to COVID-19, the market value per share quoted in share market had gone down to below Rs 303.

Relying on clause 6 of the said trust deed, the defendants are secured.

Further it has been stated that if shares are sold in the present situation, it would cause an irreparable loss to the plaintiffs. Therefore Court be pleased to restrain defendant 2 from selling these shares in the market.

Counsel for the defendant vehemently opposed the grant of ad interim relief.

Decision of the Court

Bench noted that as the market has collapsed due to COVID-19, per share value has come below Rs 100.

Thus looking at the present situation, ad interim relief till next date is to be granted to the plaintiffs.

Matter to be listed on 04-05-2020. [Rural Fairprice Wholesale Ltd. v. IDBI Trusteeship Services Ltd., Commercial Suit (L( 307 of 2020, decided on 30-03-2020]

Case BriefsSupreme Court

Supreme Court: A Bench comprising of A.K. Sikri and Ashok Bhushan, JJ. dismissed an appeal filed against the judgment of the Division Bench of the Madras High Court whereby it held it had no jurisdiction to adjudicate the dispute in question.

In short, the real essence of the dispute was that the plaintiffs, resident nationals of Dubai, had filed a derivative action on behalf of a company incorporated in Dubai. They held 34% shareholding in the said company, whereas the defendants held 66% of the shares. The defendants also held around 6.16% shares in Star Health and Allied Insurance Co. Ltd., a company incorporated in Chennai, India. According to the plaintiffs, these shares actually belonged to the company registered in Dubai mentioned above. Since Star Health was incorporated in Chennai, the plaintiffs instituted a suit in Madras High Court to protect an declare the beneficial interest of the Dubai company in the said 6.16% shares. A Single Judge of the High Court admitted the suit; however, on appeal by the defendants, the Division Bench held that it had no territorial jurisdiction to adjudicate in the matter. Aggrieved thus, the plaintiffs filed the instant appeal.

On perusal of the facts, the Supreme Court noted that the plaintiffs made certain averments to the said Dubai Company being the real owners of the shares held by the defendants in the Indian Company, which was denied by the defendants. In reality, it was a dispute between the plaintiffs and defendants, all of who were residents of Dubai. Even the company whose beneficial interest was claimed was incorporated in Dubai. The Court held inter alia, that merely because the dispute is about shares issued by an Indian Company would not lead to the conclusion that cause of action has arisen in India. As a consequence, the Madras High Court has no territorial jurisdiction to adjudicate the matter. Accordingly, the judgment impugned was upheld and the appeal was dismissed. [Ahmed Abdulla Ahmed Al Ghurair v. Star Health and Allied Insurance Company Ltd.,2018 SCC OnLine SC 2554, decided on 26-11-2018]