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A B c D E F G ff 661 UNION OF INDIA v. ALLIEDINTERNATIONAL PRODUCTS LTD. & ANR. October 19, 1970 fJ. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.J Companie.< Act, 1956, s. 73-Stock Exchange extending ti111c for con sideration of applicationfor enlisting of shares 1vithin /our ;reeks of closing of subscriptionlist-Furtl1er intimation given to ccnnpany witlriu seven weeks that application was underconsideration-Approvalgiven after seven weeks-Whether approval valid-Approval hy one of ,lwres if .s. '' · · _, ~.; uHl.l U1 sub-s. (5): thefonner used the expm,;mn"permission has notbeengranted'',whereas sub-s.( 5)usedthe e:ii:pression "permissionshall not be deemed tobe refused".The expression "permission has not beengrant ed" is ambiguous : . it may mean "permission has beenrefused" : it may also meanthat the applicationfor per:nission is under con sideration andhas 111ot beendisposed of. Spb-sections (1) & (2) of s. 73 wereborrowedfrom s. 51 of theEnglishCompaniesAct, 1948 with slightmodifications. But the draftsmanof theIndian Act,for reasonswhich it is difficultto appreciate,substituted the expression "permissionhas not beengranted"for the expres sion "permission hasbeen refused". In enacting sub-s. ( 5)of s. 73 thewordsused in sub-s. ( 5)of s. 51 of theEnglishAct, viz. "permissior. shall not be deemedto berefused"were adopted. In Qur judgmem, the expression "permission hasnot beengrant ed" in sub-ss. (1) & (2) wasintendedin thecontextin which it occursand in thelightof theobject of the enactment,to mean "permission hasbeen refused". A Stock Exchange fulfils a vitalfunction in the economic deve lopmentof a nation: itsmainfunctionis to "liquify capitalby enablinga personwho has investedmoney in saya factory or a railwayto convertit intocashby disposingof his share in the enterprizeto someone else". Investmentin jointstock compa nies is attractiveto thepublic,becausethe valueof thesharesis announcedday afterday in the StockExchanges, and the shares 668 SUPREME COURT REPORTS [1971] 2 s.c.~ quotedon theExchangesare capableof .almost immediateconver sion into money. In moderndays a companystands little chance ofinducingthe publicto subscribe to itscapital,unless its shares arequotedin anapprovedStock Exchange.All publiccom paniesare anitious to obtain permissionfrom reputedexchanges forsecuringquotationsof theirsharesand the management of a companyis anxious to informthe investingpublic that the share;s of thecompany will be quotedon theStockexchange.To pre ventmalpractices,the Parliamentenacted legislationwhich aim edat securingcontrol over the properfunctioningof theStock Exchanges, and also placedstringentrestrictionsupon the repre sentationsmade by the companies in issuingprospectusinviting subscriptions.The Parliamentenacted the SecuritiesContracts (Regulation)Act 42 of 1956,and simultaneouslymade provi sionin s. 73 of theCompaniesAct, 1956,for ensuringthat re presentationsmade in the prospectusare carriedout andlluidity oftheinvestmentby theholderof stock is ensured by procuring permissionfor quotation of sharesin a recognizedstock ex change. Under sub-s. (1) of s. 73 an applicationfor permissionto securequotation, if not previouslymade, shall be madebefore thetenthday afterthe firstissueof theprospectus,and if the ap plication is not so made,the allotment is void. Againif the Exchangerejects the applicationwithin four weeks, . orwithin seven weeks afterextendingthe time, the allotment will be void, unlesswithinthat periodthe Exchangehas informedthe Com pany that furtherconsiderationwill be given to theapplication. It is howevernot enactedin s. 73 ( 1)that if theapplicationis notgrantedwithin the time prescribed,it cannot be grantedafter the expiryof theprescribedperiod, even if the Exchangehas intimatedthat it will give furtherconsiderationto theapplication.Sub-section ( 5)containsa clearimplication tothecontrary. If the Exchangehas intimatedwithin the pe riod prescribed by sub-s. ( 1)thatthe applicationwill be given further consideration,it is not to be deemed that the application .is refused.The Exchange is not obliged to give anyintimation relating to theconsiderationof theapplicationbefore the last day of theprescribedperiod. If no intimation is given till thelast date of theprescribedperiod, no inferenceof refusal follows. It wouldthen be difficultto holdthat if the Exchangeintimates thatit isconsideringthe applicationor intendsto give further considerationto theapplicationthat suchan inferencemay fol low. The amendmentmade by Act 31 of 1965in sub-s.(5) by thesubstitutionof theexpression "permission shallnot be deemed to be ·refused" by theexpression "it shallnot -Oe deemedthat per mission has not beengranted" also gives a clue to the legislative intentionthat the. inferenceof refusal will not be made if the B c E F G H A JI c D F G H UNION v. ALLIED PRODUCTS (Shah, /.) 669 Exchangehas intimatedto theapplicantthat furtherconsideration will be givento theapplication. Weare unable t6 holdthat permissionfor "enlistment" of sharescan be givenwithinthe ·initial four weeks or if time be extendedwithin seven weeks from the dateof theclosingof the subscriptionlist, and if permissionbe notgrantedby theExchange withinthose seven weeks, the allotmentbecomes void, even if the Stock Exchangeintimates that it is givingfurther considera tion to theapplication.The intendmentof sub-ss.( 1), (2) & ( 5) is plain.If within four weeks fromthe dateof theclosing ofthesubscriptionlist, the Stock Exchangesends no intimation eitherextendingthe time or notifying that the application "though notat presentgrantedwill be givenfurtherconsideration,"the application is deemedto berefused. If the Stock Exchangeso desires it mayintimatethat the period is beingextendedto seven weeks. The Exchangemay say nothing more withinthe extended period,m which case, ontheexpiryof theextendedperiod the allotmentbecomes void. If, however,within the fourweeks,or withinthe extendedperiod of seven weeks, theExchange inti matesthat eventhoughthe applicationfor permission is notat presentgranted,the application will be givenfurther considera tion, theapplication is not deemedto be refused until it is finally decided. Theapplicationfor allotmentof sharesand acceptance there of constitutea contractbetweenthe Companyand the applicant. Section 73 (1) of theCompaniesAct imposesa penaltywhereby theallotmentof sharesbecomesvoid on thehappeningof the con tingencyspecifiedtherein.The impositionof. penaltydepends uponthe violationof theExchangeand whenimposedoperates toinvalidate all contractsresulting. from albtment of shares bet weenthe applicantsfor sharesand the Company. Such a provi sionmustbe strictlyconstrued. Unless the statutein clearterms. so. provides,when the Exchangeintimates its desireto consider theapplicationfurther, an inforence that the Exchangehas still rejectedthe application,cannot be made. It is true that in theprospectusissued by the Company it was intimatedthat applicationsare beingmade to the Bombay, Cal· cuttaand Delhi Stock Exchangesfor permissionfor official quo tationsof theshares of theCompany. It is notcontended,and it cannot reasonablybe contended,that onlyone applicationfor pemlission to securequotationof thesharesin anapproved Ex change may bemade.The expression "a recognised stock ex· change" means "anyrecognisedexchange". More applications thanone for quotation of sharesmay therefore be made. In the. presentcase, three applicationswere submittedon June3, 1965. Two of theseapplicationswere rejectedand one was granted.We 670 SUPREME COURT REPORTS [1971] 2 S.C.R. areunable to holdthat unless all the applications weregranted, theallotmentof sharesmust, . by virtue of sub-s. ( 1) of s. 73, ·.beinvalid. The object of s. 73(1) is thatthe subscribers to the sharesmust have facilityto approachan Exchangefor having theirholdings convert~ whenever the.T desire.Even if outof severalExchangesapproached,one or more, but not all, have grantedthe applicationfor "enlistment", the facility of ensurmg quickconversion is still available. If afterrepresentingin tho: prospectus that an application ha& beenmadeto a recognised exchangefor "enlistment" or will be made within the prescribed period,the Company is unabie to obtainpermission for "enlist ment" fromany exchange,the allotment wil! ;ie invalid. But sub-s. (I) is notintended to meanthat it will be invalid,even if permissionis obtained,but not from all the Exchangesto which applications havebeen made. Section 73 ( 1) 1s enactedwith the objectthat the subscribers will be ensuredthe facility of easyconvertibilityof theirholdings whenthey havesubscribed to the shareson the representationin theprospectusthat an applicationfor quotationof shares has been orwill be made.The allotmentof shareswill be invalidonly when permission forquotation is notobtained.When pel1:ilis· sion from one or moreof theExchanges is obtained,it carries outthe object o.f the Act. It will be a mechanicalinterpretation whollydivorcedfrom the trueobjectand intendmentof theActto holdthat evenif permission is securedfor quotationof sharesin anExchange,the allotmentwill be invalidbecauseanother ex changehas not grantedthe permission.That this is the true· meaning of s. 73 (1) is clear fromthe factthatthe penaltyof avoidanceof allotmentof shares is attractednot only where the p~rmission appliedfor hasnot beengranted,but whereno appli cationhas beenmadewithinthe prescribedperiod. If applica tions are madeto severalexchanges, some within the period of ten days after the first issueof theprospectus,and some beyond, orthatone or more applications,but not all, is or aredefective, andthe error is notrectified, it would be uni .:asonable to hold thatbecause some of the applicationsmade beyondthe tenth day after the first issue of theprospectus,or aredefective,are liable to berejected, the applicationsproperly made beforesome of the Exchangesare alsoineffectiveand the allotmentmade may be invalid. Counsel for the Calcutta Stock Exchangeurged that wherea person is inducedto subscribe for shares relyimr upona represen tationthat an application is madeor intended to bemadefor quotationof theshares in an Exchang-e near his home-town,and it is foundthat the application is not m2de or if made it is rejectedby theExchange, ;1 wDu;o;""' " ·' , .. :.'• ':udship i» the A • c E F G H UNION V. ALLIED PRODUCTS (Shah, J.) 671 A shareholder if he is boundby theallotment,even if the condi· tion of securingquotationin theExchangeconvenient to him isnotcarriedout. But s. 73 ( l) declaresthe entireallotment void: it' doesnot takeinto consideration the right or convenience ofindividualshareholders. An enquiry whethera shareholder or aclassof share-holderswas or were inducedto subscribe for Bshareson therepresentation is irrelevi:nt in determiningwhether theallotment is for failureto securecompliancewith a statutory conditionrendered invalid. We neednot considerwhether the individualshareholderwho findsthat an Exchangeconvenientto him has not listedthe sharesfurnishesa cause of actionto him foravoidingthe contract. CWe are in theview we havetakennot calledupon to decide Dwhether the provisionsof s. 73 of the CompaniesAct, 1956,are ultra vires, nor do we considerit nece;sary t<:' decide whether s. 22 of theSecuritiesContracts(Regulation)Act, 1956, is ultra vires. It was urgedon behalf of the Delhiand Calcutta StockEx changesthat the HighCourtought,in exerciseof thepowerunder 0. 41 r. 33 of theCodeof CivilProcedure,to havevacatedthe writof mandamus issuedrequiringthem to grantpermissionfor quotation of theCompany'sshares. An AppellateCourt may inappropriatecase passany decreeand makeany order appro priateto theends of justice,even if a partyhas notappealed Eagainst an adversedecision.That powermay be exercisedby the Court notwithstandin~ thatthe appeal is as to a part only of the decreeand may be exercisedin favour of all or any of theparties, eventhoughthey maynot havefiled any appeal or objection. Butthe jurisdiction is discretionaryand the HighCourthas not exercisedit apparentlyfor gV:Jod J»aSon8. The order passed againstthe Unionand the twoExchangeswere in substance dis· tinct. Againstthe Unionthe orderwas made quashinl( its order inappealagainstthe ordersof theExchanges;and againstthe F G Exchangesthe orderwas made directiilg inclusion of the shares ii! th~ list of quotedshares.The Exchangesacquiesced in the d1recllon. Weneed,however,not express ·any finalopinionin this question.We are informed at the Barthatthe Calcutta Stock Exchangehas appliedfor certificateto theHighCourt of Delhi andthat applic3;tio'! is pending.We neednot pre-judgethe re sult of that apphcat10n or the ~.ppeal, if any,whichmay be filed inthisCourt. The apr~als fail andare dismissedwith costs.There will be Hone hearing foe in favour of theCompany.The otherpartieswill bear their own costs. G.C. Appeals dismissed. |
