Misc. Petition No.25 of 2002,Misc. Application No.18 of 2004

28th July, 2004

Petitioner Counsel: Mr. ASPI CHINOY,Mr. C. S. BALSARA , Mr. MOHD. HIDAYTULLAH , Mr. MADHUR RAI,NEGANDHI SHAH HIMAYTULLAH,Ms. LEENA ADHWARYU
Respondent Counsel: Mr. SHIRAZ RUSTOMJEE,Mr. G. R. JOSHI,b M/s.P. M. & Mithi & Co.,Mr. HITEN DALAL

Cases Cited:
BOI Finance Vs. Custodian and A. K. Menon Vs. Fairgrowth Financial Services Ltd., 1994 Company Cases 508 [Para 5]
Norman J. Hamilton Vs. Umedbhai S. Patel, 1979-(CC2)-GJX-0087-BOM : (1979)49 Company Cases 1 (Bom) [Para 5,7]
Dahiben Umedbhai Patel Vs. Norman James Hamilton, (1985)57 Comp Cas 700 (Bom) [Para 5,7]
Brooke Bond India Ltd. Vs. UB Ltd., 1999(2) Bom. C.R. 429 [Para 5]
Bharat Nidhi Ltd. Vs. Takhatmal (Dead) by his Legal Representatives, AIR 1969 SC 313 [Para 5]
A. K. Menon Vs. Modern Chemical Corporation, 2002(1) ALL MR 180 [Para 10]

JUDGMENT

JUDGMENT :- Misc. Petition No.25 of 2002 has been filed by Mysore Fruit Products Ltd., M/s. Karnataka Breweries and Distilleries Pvt. Ltd. and Shri. D. K. Audikesavulu challenging the order passed by the custodian dated 12th December, 2001 under Section 4(1) of the Special Court (Trial of Offences relating to transactions in Securities) Act, 1992 (hereinafter referred to as the "Act" for the sake of brevity) cancelling the transaction of sale of 1 lakh shares of Fairgrowth Financial Services Pvt. Ltd. to Mr. Hiten Dalal, the notified party.

Misc. Application No.18 of 2004 has been taken out by the custodian basically for a direction to the Petitioner in Misc. Application Petition No.25 of 2002 to deposit with the custodian the amount of Rs.4,00,10,000/- with interest at the rate of 14% p.a. from the date of receipt of the amount.

2. Both these petition and application relate to the same transaction, therefore, both these petitions can be disposed of by a common order.

The Petitioners in Misc. Petition No.25 of 2002 hereinafter shall be referred to as "the Petitioners" and Petitioners in Misc. Application No.18 of 2002 shall be referred to as "the Custodian". Mr. Hiten Dalal, who is party in both the petitions shall be referred to as "the notified party".

3. The facts that are material and relevant for deciding Misc. Petition No.25 of 2002 and Misc. Application No.18 of 2004 are that the Petitioner Nos.1 & 2 are companies incorporated under the Companies Act. Petitioner No.3 is the Director of both the companies. It appears that the Petitioner No.1/company received an amount of Rs.1,00,00,000/- on 19th March, 1991 from the notified party. A further sum of Rs.2,00,00,000/- was received by the Petitioner No.1/company on 23rd March, 1991 from the notified party. The Petitioner No.2 received the amount of Rs.1,00,10,000/- from the notified party on 28th May, 1991. According to the Petitioner No.3 as a security for the amounts that were advanced by the notified party to the two companies, the Petitioner No.3 as Director of both companies handed over to the notified party 2,50,000 shares of FFSL, which were held by him, his wife and his son. According to the Petitioners on 8th April, 1992 the Petitioner No.3 sold 1 lakh shares of FFSL out of 2,50,000 shares that were handed over by him to the notified party at the price of Rs.500/- per share. The amount that was given by the notified party to the two companies, that is the amount of Rs.4,00,10,000/- was to be adjusted towards the price of these 1 lakh shares and balance amount of Rs.99,90,000/- was to be paid by the notified party and the notified party was also to return balance 1,50,000 shares of FFSL to the Petitioner No.3. According to the Petitioners, this transaction is recorded in the letter dated 8-4-1992. It is also submitted that the transaction was agreed on 8-4-1992. The transaction was actually to take place on 30th September, 1993. According to the Petitioners, though transaction was completed the notified party did not pay the amount of Rs.99,90,000/- as agreed. It appears that on 27th November, 1997 the custodian issued a show cause notice to Petitioner Nos.1 & 2 companies and the Petitioner No.3 as also the notified party to show cause why the transaction of loan advanced by the notified party to the two companies should not be cancelled under Section 4 of the Act. A reply was filed on behalf of the Petitioners. The main defence taken was that the transaction of advancing loan to the Petitioner No.1/company was before 1st April, 1991, therefore, it cannot be a subject matter of show cause notice and order under Section 4. Thereafter a show cause notice dated 22-1-1999 was issued by the custodian to the three Petitioners as also the notified party asking them to show cause why the transaction of sale of 1 lakh shares by the Petitioner No.3 to the notified party should not be cancelled as fraudulent and as having been entered into to defeat the provisions of the Act. Petitioners submitted their explanation. They were also heard. The custodian ultimately passed an order dated 12th December, 2001 holding that the transaction of sale of 1 lakh shares by the Petitioner No.3 to the notified party for adjusting the amount advanced by the notified party to the two companies was fraudulent and was entered into to defeat the provisions of the Act and two companies were directed to bring back the amount with interest from the date on which the amounts were received by the two companies. The custodian has set aside the transaction of the adjustment of the advance of Rs.4,00,10,000/- by the notified party to the two companies on the ground that it is a fraudulent transaction and it was entered into to defeat the provisions of the Act. The Petitioner filed their petition and challenged the order, during the pandency of that petition the custodian filed Misc. Application No.18 of 2004 stating therein, without prejudice to the contentions of the custodian that the transaction is fraudulent and has been brought about to defeat the provisions of the Act, that the alleged transaction is illegal and therefore under Section 3 the amount of Rs.4,00,10,000/- which was with the two companies continued to be the property of the notified party on the date of the notification of the notified party under the Act namely on 6-6-1992 and therefore the monies stand attached under the provisions of Section 3 of the Act and therefore direction is sought from the Court that the two companies should be directed to deposit the attached property with the custodian.

4. It is submitted on behalf of the Petitioners that the only ground that was given in the show cause notice for cancelling the transaction of the sale of the shares by the Petitioner No.3 to the notified party was that the shares were non-transferable and therefore their ownership cannot pass to the notified party and further that as the alleged transaction was entered into to divert the monies from the notified party, the transaction was entered into to defeat the provisions of the Act. It is submitted that the finding recorded in the order that because of the lock-in-period the shares were non-transferable is ex-facia incorrect. The impression that the shares are non-transferable was wrong. On 8th April, 1992 itself the shares can be transferred and therefore the transaction of transfer of the shares was perfectly legal and valid. The learned Counsel appearing for the Petitioners made a detailed submission to show by reference to the document that the impression of the Petitioner No.3 that because of lock in period the shares were non-transferable was wrong and that on 8th April, 1992 itself the shares were transferable. It is submitted that, therefore, the finding recorded in the order that the shares were non-transferable and therefore their transfer on 8th April, 1992 is illegal and is therefore liable to be set aside. It is further submitted that the allegation in the show cause notice that the alleged transaction was entered into to divert the monies from the notified party and therefore the transaction was entered into to defeat the provisions of the Act is not a separate ground. It is submitted that in the show cause notice no material facts have been stated in support of this ground. It is submitted that therefore in the absence of the material fact the finding recorded by the custodian is liable to be set aside as the finding is recorded in breach of the principle of natural justice. It is further submitted that the finding in the order that the transaction of sale was fictitious is ex-facie illegal and because no such allegation was made in the show cause notice, on behalf of the Petitioners it is submitted that there is no fraud involved and therefore the order passed under Section 4 is liable to be set aside.

5. The learned Counsel appearing for the custodian firstly supported the order passed under Section 4 by the custodian and submitted that the transaction was completely fraudulent and was brought about only to defeat the provisions of the Act. It is further submitted by the learned Counsel appearing for the custodian that even the Petitioners admit that the sale of the shares was a forward sale. It is submitted that the forward sale of the securities was prohibited by the provisions of the Securities Contracts (Regulation) Act, 1956 and therefore the forward sale is illegal. It is submitted on behalf of the custodian that the forward sale of the shares of FFSL is contrary to the Securities Contracts (Regulation) Act. (Herein after referred to as the "Securities Act") though the shares are not listed on the Stock Exchange. The learned counsel appearing for the custodian also relied on a judgment of the learned Single Judge of this Court in the case of BOI Finance Vs. Custodian and A. K. Menon Vs. Fairgrowth Financial Services Ltd. and another. dated 14th December, 1993, 1994 Company Cases page 508. On the contrary the learned counsel appearing for the Petitioners contended that the forward sale of the shares of FFSL was not prohibited because shares were not listed on the Stock Exchange. In support of this submission the learned Counsel appearing for the Petitioners relied on a judgment of the learned Single Judge of this Court in the case of Norman J. Hamilton and Anr. Vs. Umedbhai S. Patel and ors., 1979-(CC2)-GJX-0087-BOM. The judgment of the Division Bench of this Court in the case of Dahiben Umedbhai Patel and ors. Vs. Norman James Hamilton and ors. (1985) Company Cases (sic) , the judgment of the learned Single Judge in the case of Brooke Bond India Ltd. Vs. UB Limited and ors., 1999(2) Bom. C.R. 429 to contend that the provisions of the Securities Act applies only to those shares which are listed on the Stock Exchange. It was also submitted on behalf of the Petitioners that though the actual sale of the shares took place on 30th September, 1993, on 8th April, 1992 equitable charge in favour of the Petitioners was created on the amount of Rs.4,00,10,000/- and therefore even if it is assumed that the amount on the date of notification of the notified party under the Special Court Act was the property of the notified party and therefore it gets attached, the attachment will be subject to the charge of the Petitioners. In support of this submission, the learned Counsel for the Petitioners relied on a judgment of the Supreme Court in the case of Bharat Nidhi Ltd. Vs. Takhatmal (Dead) by his Legal Representatives and anr., AIR 1969 SC 313.

6. Now for deciding both these petitions one has to consider the scope of the provisions of Sections 3 and 4 of the Special Courts Act. It is sub-sections 3 and 4 of Section 3 which are relevant. They read as under :-

"3(3) Notwithstanding anything contained in the Code and any other law for the time being in force, on and from the date of notification under sub-section (2), any property, moveable or immoveable, or both, belonging to any person notified under that sub-section shall stand attached simultaneously with the issue of the notification.

3(4) The property attached under sub-section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct."

Perusal of the above quoted provisions makes it clear that on the date on which a person is notified under the provisions of the Act any property, moveable or immoveable, belonging to that person by operation of statute stands attached and that property has to be dealt with by the custodian in accordance with the order passed by the Special Court. In the present case, there is no dispute that the amount of Rs.4,00,10,000/- belonged to the notified party and it was given as advance by the notified party to the Petitioners Nos.1 & 2 companies in the year 1991. According to the Petitioners, this amount which belonged to the notified party was adjusted by the Petitioner No.3 as the price of 1 lakh shares of the Company FFSL on 8th April, 1992. It, therefore, becomes necessary to refer to the letter dated 8th April, 1992 addressed by the Petitioner No.3 to the notified party. At the hearing of the matter, the learned Counsel appearing for the Petitioners stated that the transaction stated in the letter dated 8th April, 1992 is the real transaction and all other versions of the transaction that might have been given by the Petitioners are disowned and the Petitioners rely on the transaction as explained in this letter dated 8th April, 1992. Therefore, in my opinion, it would be appropriate to quote the entire letter, it reads as under :-

"This bears reference to the advance of Rs.4,00,10,000/- (Rupees Four Crores and Ten Thousand only) arranged by you for our Companies.

We confirm having sold to you this day one lakh shares of Fairgrowth Financial Services Limited at Rs.500/- nett to us.

These shares are not transferable till 30th September, 1993 and you have agreed to continue the advance of Rs.5,00,00,000/- (Rs.4,00,10,000/- already remitted, balance sum of Rs.99,90,000/- to be remitted by you), till 30th September, 1993 on which date the absolute sale will take place and entries will be reversed.

We request you to arrange to remit the balance amount of Rs.99,90,000/- (Rupees Ninety Nine Lakhs Ninety Thousand only) at the earliest.

We also request you to return 1,50,000 shares of Fairgrowth Financial Services Ltd, standing in the name of Smt. D. A. Sathyaprabha and Sri. D. A. Srinivas. The shares standing in the name of Sri. D. K. Audikesavulu may be retained towards our sale of 1,00,000 shares.

As requested by you, we are sending enclosed a fresh transfer deed for the shares standing in the name of Sri. D. K. Audikesavulu.

We request you to send the confirmation for the above transaction."

Reading of this letter shows that the Petitioners admit that as on that date namely 8-4-1992 an amount of Rs.4,00,10,000/- belonging to the notified party was with the two companies. The letter then states that it is agreed between the Petitioner No.3 and the notified party on 8th April, 1992 that the notified party purchases 1 lakh shares of FFSL at the rate of Rs.500/- per share. The letter also shows that the notified party has agreed to continue the advance of Rs.4,00,10,000/-, which is already with the Petitioners/companies and further amount of Rs.99,90,000/- to be remitted by the notified party to the two companies till 30th September, 1993. It is thus clear that though according to this letter the parties had agreed about the sale and price of the shares, the amount of Rs.4,00,10,000/- was to continue as advance given by the notified party to the two companies till 30th September, 1993 and the sale of the shares was to take place on that date namely 30th September, 1993. One thing that emerges from this letter is that the amount of Rs.4,00,10,000/- was to continue as advance made by the notified party to the two companies till 30th September, 1993. Mr. Hiten Dalal admittedly was notified under the Act on 6-6-1992. Thus on that date the status of the amount of Rs.4,00,10,000/- was that the amount belonged to the notified party and it was lying as an advance with the two companies, and therefore, by operation of the provisions of sub-section (3) of Section 3 the amount of Rs.4,00,10,000/- being the property of the notified party on 6-6-1992 would stand attached and that property can be dealt with by the custodian in such manner as the Special Court may direct. It is, thus, clear that before the sale of the shares was to take place i.e. on 30th September, 1993 the notified party who owned the amount, lost his capacity to deal with the amount. Now, the amount could be dealt with only by the custodian under the directions of the Special Court, and therefore, unless the order is made by the Special Court, the sale of the shares for adjusting the advance will not take place. In other words, as a consequence of notification of Mr. Hiten Dalal under the provisions of the Act, for the purpose of completing the sale it was for the Petitioners to approach the Court and seek appropriate orders. The learned Counsel for the Petitioners relied on the judgment of the Supreme Court in the case of Bharat Nidhi, referred to above, and submitted that the monies stood assigned to the Petitioner No.3 on 8th April, 1992 itself, and therefore, there is no question of that amount being attached.

In my opinion, the submission is not well founded in view of the recital of the letter itself, because the letter in terms says that the amount was to continue as advance till 30th September, 1992.

7. Another aspect of the matter that is to be seen in view of the provisions of Section 3 is that if the transaction of sale which admittedly is a forward sale of the shares itself is contrary to law, then there is no question of their being any assignment as alleged by the Petitioner. There was no dispute before me that the transaction reflected in the letter dated 8-4-1992 is the transaction of forward sale of shares of a public limited company. It is also not disputed that such a sale is prohibited by the Securities Act. The only debate before me was whether the prohibitions contained in the Securities Act apply only to the shares of the companies which are listed on the Stock Exchange or it applies also to the shares of the public limited companies which are not listed on the Stock Exchange. In support of this submission, as observed above the learned Counsel appearing for the Petitioners has relied on an authority of this court in the case of Norman J. Hamilton Vs. Umedbhai S. Patel (1979) 49 Company Cases 1 (Bom). In this case the question was whether the said Act applied to a transaction of sale of shares of a private limited company. The issue before the Court, as set out at page 6 of the judgment, was whether an agreement to sell shares of a private limited company was illegal and void by virtue of the provisions of the said Act. In this judgment, it has been laid down that by reason of the definition of the term "securities" under section 2(h), the Act would only apply to securities which are marketable. It is held that essentially "marketable" means something which can be offered for sale in a market. It is held that goods become marketable when there is a market or a place where the goods of the type in question can be readily sold. It is held that word "marketable" thus implies a certain ease or facility in selling. It is held that if the definition of the word "securities" is read along with the definition of "stock exchanges", it becomes clear that the purpose of the Act is to control securities which are normally dealt with on the stock exchange, i.e. shares of a public limited company. It is held that construed in this sense the definition of the word "securities" would exclude from its purview shares which are not marketable, such as shares of a private limited company. This is because such shares are by their nature not freely transferable in the market. Their transfer is restricted in the manner provided in the articles of association of private limited companies and these shares cannot be quoted on the stock exchange. The learned judge also examined the background in which the Act was passed, the mischief which was sought to be suppressed and the statement of object and reasons for passing the legislation. It was noticed that a committee known as the Gorwalla Committee was constituted for suggesting ways and means of preventing and controlling speculation in shares of public limited companies. It is then held that the main purpose was to regulate speculation in shares on the stock exchanges and to regulate the mechanism of stock exchanges for this purpose. The learned judge also noted the scheme of the Act. After examination of various sections, the learned judge held that machinery for regulating dealings in securities is the machinery of the stock exchange. The learned judge noted that there is no provision made in respect of listing of shares of private limited company. The learned judge noted that the bye-laws of the Bombay Stock Exchange also do not deal with listing of shares of a private limited company. It was accordingly held that a contract of sale of shares of a private limited company was not governed by the provisions of the said Act. Based on the above judgment, it has been submitted that only shares/securities which are listed on the stock exchanges can be said to be marketable. It is submitted that it has been clearly held that marketable means something which is offered for sale in a market. It is submitted that it is held that goods become marketable when there is a market or place where goods can be readily sold. It is submitted that the shares/securities which are not quoted cannot be dealt with on the stock exchange and that, therefore, they could not be said to be marketable. It is submitted that any security which has not been listed on the stock exchange would not be marketable in the sense as used in the said Act. It is submitted that this is also clear from the report of the Gorwalla Committee which reads as follows :

"2. The problem which the Government have asked us to examine is the manner of regulation of stock exchange. This must be taken to imply that from the point of view of the public interest, the Government considers, firstly, that stock exchanges do fulfill a legitimate and useful function in their own sphere and, secondly, that the function needs to be properly regulated.

A consideration of the functions of a stock exchange is perhaps the most suitable starting point for the formulation of an approach to the problem of regulation. The legitimate function of a stock exchange is to provide, consistently with the larger public interest, a forum and a service which are so organised, in the interests of both buyers and sellers, as to ensure the smooth and continual marketing of shares ...."

It is submitted that this also clearly shows that the said Act is only to prevent speculation in shares listed on the stock exchanges. It is submitted that the provisions of the said Act provide the stock exchange as a machinery for regulating dealing in securities. It is submitted that sections 21 and 22 give powers to compel listings, so that if transactions in securities of any public or Government company are to be governed, then that company can be forced to list its shares/securities. It is submitted that though sections 13, 16 and various other provisions of the said Act merely talk of "securities", it necessarily means "securities which are listed on the stock exchange". It is submitted that even the notifications issued under sections 13 and 16 must necessarily relate to securities which are listed on the stock exchange. The learned Counsel for the Petitioners also relied upon the judgment given by the appellate court in the appeal filed against the above judgment. The judgment of the appellate court is reported as Dahiben Umedbhai Patel Vs. Norman James Hamilton (1985)57 Comp Cas 700 (Bom). In this judgment it has been held that the statement of objects and reasons shows that the object of the Act was to provide for regulation of stock exchanges and of transactions in securities dealt in on them with a view to preventing undesirable speculation in them and it also seeks to regulate the buying and selling of securities outside the limits of stock exchanges through licensing of security dealers. Thus, the Division Bench recognises, right at the beginning, that the said Act also deals with regulation of transactions in securities outside the stock exchanges, i.e., unlisted securities. The Division Bench then held that the effect of section 13 was that if transaction in securities was to be validly entered into, such a transaction has to be between members of a recognised stock exchange or through a member or with a member of a recognised stock exchange. The Division Bench held that the definition of the word "securities" was an inclusive one. The Division Bench then held as follows (at pages 711, 713).

"... A reading of the inclusive part of the definition shows that the Legislature has enumerated different kinds of securities and by way of a residuary clause used the words 'or other marketable securities of a like nature'. The use of these words was clearly intended to mean that the earlier categories of securities had to be marketable and any other securities of 'like nature', that is to say, like those which were categorised or enumerated earlier were also to be marketable before they could be held to fall within the definition of 'securities'.

... in our view, the words plainly read are incapable of any other meaning except that the Legislature made the definition of 'securities' an inclusive one having regard to the object with which the Regulation Act was enacted, namely, to control transactions which were carried on in a market, that is, the stock exchange. The securities referred to in the definition were clearly intended to have a character of marketability. It is no doubt true that what is saleable can also be marketable. But when you are dealing with a market of a particular kind or a market where transactions in only a particular commodity are carried on, then the marketability of securities must be considered from that angle. It in needless to point out that a market contemplates an appointed place of buying and selling. Indeed, the Act itself refers to the power of the stock exchange to provide for opening and closing of markets and the regulation of the hours of trade as a matter on which a bye-law can be made by the stock exchange. The stock exchange, therefore, is contemplated as a market even under the Act...

Thus, as put by Lord MacDermott, the word 'marketable' must, in the present case, govern the catalogue of securities earlier mentioned.

In Webster's Third New International Dictionary 'marketable' is stated to mean 'fit to be offered for sale in a market; being such as may be justly or lawfully sold or bought'. In order that securities may be marketable in the market, namely, the stock exchange, the shares of a company must be capable of being sold and purchased without any restrictions. In other words, the transfer of a share in a company must vest title in the purchaser and this vesting of title in the purchaser should not be made to depend on any other circumstance except the circumstance of sale and purchase. A market, therefore, contemplates a free transaction 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..." (emphasis provided)

The Division Bench has also, inter alia, held that in the case of shares of a public limited company, the transfer is complete and even if the transfer is not registered the transferor holds the shares for the benefit of the transferee. The Division Bench held that it was clear that the definition of the word "securities" would include shares of a public limited company. The Division Bench has also held that the term "securities" would, therefore, mean securities which were capable of being listed on a stock exchange. The use of the term "capable", in my view, would clearly include securities which are not just listed but also securities of public companies which are capable of being listed on a recognised stock exchange.

8. These authorities, therefore, do not support the proposition canvassed on behalf of the Petitioners. It is to be seen that the question which has come up for consideration before this Court was not being considered either by the learned Single Judge or by the Division Bench. The question that was considered by the learned Single Judge and the Division Bench was whether shares of private limited company can be included within the definition of the term "securities" in the context of above observations. So far as the judgment of learned Single Judge in the case of Brooke Bond India is concerned, it is clear that by that judgment what was decided was the Notice of Motion and view expressed by the learned Single Judge in that judgment was prima facie view. If one goes through the provisions of the Act, the scheme of the Act makes it clear that no restrictive interpretation can be placed on the terms used in the Act. If the provisions of the Act are looked at, it is clear that it relates not merely to securities which are listed but it also relates to securities which may not be listed in any stock exchange. All that is required is that there must be "marketability". In my view, it cannot be said that any security which is not listed on any recognised stock exchange is not "marketable". As laid down by the single judge and the Divisions Bench (in the judgments set out above) "marketability" implies ease of selling and includes any security which is capable of being sold in the market. This does not mean that it must be sold in the market. All bonds of Government companies are freely and easily transferable. Normally, shares of public limited companies are also freely transferable. Any security which is capable of being freely transferable is marketable. As is seen, the definition of the word "security" under section 2(h) is an inclusive definition. It is very wide. Thus all securities which are marketable and which have an ease or facility of selling and/or which have a high degree of liquidity and/or are capable of being sold in a market i.e. stock exchange, are included. That this definition includes securities which are not listed by a stock exchange is clear from section 17. If section 17 is read, it is clear that it applies to areas where section 13 could not apply. This is because in the whole of India, so far as the court is aware, there are only 21 recognised stock exchanges. Thus, in areas where there are no stock exchanges and where there can be no listed securities, the Government can regulate by means of licensed dealers. The licensed dealers would have to follow the regulations laid down by the Government in their licences and the provisions of the said Act. Also the object of the Act, as seen from the preamble, is "to prevent undesirable transactions in securities by regulating the business of dealing therein". It is settled law that there can be two methods of regulation (1) by making something compulsory; and (2) by laying down certain disadvantages if the provisions are not complied with. In my view, the said Act seeks to regulate by placing certain disadvantages in respect of transactions in securities unless the companies get their shares/securities listed. Thus, under the said Act the only type of transaction which is permitted is a "spot delivery contract". Further, if section 16 is read along with the notification dated June 27, 1969, it is clear that it governs transactions in securities in the whole of India. As stated above, in the whole of India there are only 21 recognised stock exchanges. Therefore, there are many parts of India where there are no stock exchanges. Is it at all to be suggested that section 16 and the notification issued thereunder, even though it says that it "regulates transaction in securities in the whole of India", are by reason of an artificial definition to be restricted only to areas where there are stock exchanges. To accept the argument of the learned Counsel for the Petitioners, would amount to saying that in areas where there are stock exchanges and the securities are listed on that stock exchange, ready forward transactions would be prohibited in these securities but in areas where there are no stock exchange, ready forward transactions in the same security could be carried on. This would be contrary to the plain reading of both section 16 as well as the said notification. Further, it is an admitted position that the list of securities of the various stock exchanges will not be identical. Some securities may be listed on one stock exchange, but they may not be listed on other stock exchanges.

9. Thus, it is clear that forward sale of shares even of the public limited companies which are not listed on the stock exchange are prohibited by the Securities Act. Therefore, the transaction alleged to have been entered into on 4th April, 1992 of forward sale of 1 lakh shares of FFSL was contrary to the provisions of the Securities Act and therefore even if it is assumed that the transaction in fact took place the transaction can not be given effect to as it is illegal transaction. The amount of Rs.4,00,10,000/-, therefore, will continue to belong to the notified party on the date on which Mr. Hiten Dalal was notified and therefore it will stand attached under the provisions of the Act and therefore the Petitioners Nos.1 & 2 companies would be liable to deposit the amount with interest with the custodian. Really speaking in the face of the view that I have taken, it is not necessary for me to examine whether the custodian was justified in holding that the transaction was entered into to defeat the provisions of the Act. It is true that in the show cause notice, it is merely alleged that the transaction has been entered into to defeat the provisions of the Act, the facts on the basis of which this conclusion can be reached are not disclosed. However, to my mind it is clear that the facts on the basis of which it can be said that the transaction was shown to have been entered into to defeat the provisions of the Act are apparent on the face of the record. The huge amount of Rs.4,00,10,000/- is claimed to have been given merely as an advance by Mr. Hiten Dalal to the two companies. Nothing is mentioned about the interest which is payable by the two companies to Mr. Hiten Dalal. 250,000 shares of FFSL are supposed to have been given by the Petitioner No.3 to Mr. Hiten Dalal in 1991. As per the letter dated 8-4-1992, Mr. Hiten Dalal was to return 1,50,000 shares to the Petitioner No.3. He was also to pay an amount of Rs.99,90,000/- to the Petitioner No.3. But at no point of time any demand has been made by the Petitioner No.3 either for the amount of Rs.99,90,000/- or for 1,50,000 shares, which Mr. Hiten Dalal is supposed to be holding, belonging to the Petitioner No.3. It is common knowledge that the securities scam had broken out in the month of March, 1992 and steps were being taken by the authorities in that regard. It was also obvious that Mr. Hiten Dalal was involved in that scam and therefore obviously papers were prepared to show adjustment of the amount. It is impossible to believe that had the transaction been genuine, why during all these years the Petitioner No.3 did not think it necessary to demand from the notified party or the custodian the shares namely 1,50,000 shares of FFSL as also the amount of Rs.99,90,000/-. In my opinion, therefore, it cannot be said that the order of the custodian made under Section 4 is completely without any basis and it is impossible to make such an order in the facts and circumstances of this case.

10. I find from the written submissions filed on behalf of the Petitioners that arguments have been incorporated contending that the reliefs sought by the custodian in Misc. Application No.18 of 2004 is barred by the law of limitation. Firstly, this question was not argued before me and secondly this question already stands decided by this Court by its judgment in the case of A. K. Menon Vs. Modern Chemical Corporation, 2002(1) ALL MR 180 and other cases.

11. In the result, therefore, Misc. Petition No.25 of 2002 fails and is dismissed. Misc. Application No.18 of 2004 succeeds and is allowed. Petitioner Nos.1 and 2 companies are directed to deposit with the custodian the amount of Rs.4,00,10,000/- with interest at the rate of 15% p.a. from the date of their deposit by the notified party with the companies, till the date of their deposit by the companies with the custodian. The amount shall be deposited by the Petitioner Nos.1 & 2 companies within a period of six weeks from today. Petitioner Nos.1 & 2 are also directed to pay costs of these Petition and Application to the custodian as incurred by the custodian.

Order accordingly.