Holding

Shares pending allotment and debentures are not "goods" within the meaning of the MRTP Act, so the MRTP Commission’s finding of no unfair trade practice stands.

Summary

The appellants R.D. Goyal and others challenged the MRTP Commission’s finding that the issue of equity shares linked with redeemable non‑convertible debentures, before allotment, did not constitute "goods" under Section 2(e) of the Monopolies and Restrictive Trade Practices Act, 1969. They argued that shares (including those pending allotment) and debentures should be treated as goods or services, making the offer an unfair trade practice. The Supreme Court examined the definition of "goods" in the Sale of Goods Act, 1930, the MRTP Act and its 1991 amendment, and held that debentures are merely instruments of debt and not goods, while shares do not become goods until they are allotted. Consequently, the Commission’s view that no unfair trade practice occurred was upheld. The appeals were dismissed.

Issues considered

Whether shares or convertible debentures, even before allotment, fall within the definition of "goods" under Section 2(e) of the MRTP Act, 1969.
Whether the invitation to offer such securities amounts to an unfair trade practice under the MRTP Act.
Whether the MRTP Commission had jurisdiction to entertain the complaint.

Legislation cited

Companies Act, 1956s. 44(2), s. 56
Consumer Protection Act, 1986
Monopolies and Restrictive Trade Practices Act, 1969s. 2(e), s. 2(o)(ii), s. 33(1)(b), s. 33(1)(g), s. 36A
Sale of Goods Act, 1930
Transfer of Property Act, 1882s. 3

Subjects

goods definitionsharesdebenturesMRTP Actunfair trade practiceallotmentcompany lawsale of goods

Judgment

R.D. GOY AL AND ANR. A
V.

RELIANCE INDUSTRIES LTD.

NOVEMBER 20, 2002

[G.B. PATTANAIK, CJ., H.K. SEMA AND S.B. SINHA JJ.] B

Monopolies and Restrictive Trade Practices Act, 1969; Ss.2(e), 2(o)(ii),
33(/)(b) and 33(g):

Equity Shares linked with redeemable non-convertible debentures-Before C
allotment-Whether goods-Held, debentures before allotment cannot be
considered as goods-It is simply acknowledgment of debt whereby issuing
con1pany undertakes to pay specified an1ount and interest thereon-Sale of
Goods Act, 1930-Goods-Companies Act, 1956-Share-Debentures.

Shares and Debentures-Distinction between-Discussed.
D

Interpretation of Statutes:

Inclusion of issue ofshare before allotment in the definition of goods by
M.R. T.P. (Amendment) Bill, 1991-Applicabi/ity thereof-Held, since E
arnend1nent is neither explanatory nor clarificatory in nature and mischief in
the definition was brought to be ren1edied, it rvould have prospective operation.

The question which arose in these appeals was whether shares or
convertible debentures, even before they are allotted, can be considered
to be goods within the meaning of Section 2(e) of the Monopolies and F
Restrictive Trade Practices Act, 1969.

It was contended for the appellants that the Commission did not
properly construe the definition of goods and service as in the !lale of
Goods Act, vis-a-vis, in the M.R.T.P. Amendment Act, 1991 and committed
a manifest error of law in arriving at the judgment. G
Dismissing the appeals, the Court

HELD: I.I. Debentures, as ordinarily understood, would not come
within the purview of definition of goods as it is simply an instrument of
231 H
232 SUPREME COURT REPORTS (2002] SUPP. 4 S.C.R.

A acknowledgment of debt by the company whereby it undertakes to pay
the amount covered by it and till then it undertakes further to pay interest
thereon to the debenture-holders. 1237-G I

A Report by Company law Committee and Company law by Palmer,
referred to.
B
1.2. Debentures having regard to the definition of 'actionable claim'
as defined in Section 3 of the Transfer of Property Act would constitute
actionable claims except where they are secured by mortgage of
immovable property or hypothecation or pledge of immovable property.
(238-D]
c
1.3. It is true that when there exists a statutory definition in respect
of an expression, the dictionary meaning thereof cannot be applied. It is
also true that when a statutory definition uses the word 'includes', it
provides an extended meaning thereto but it is equally well-settled that
the words are required to be construed in terms of the legislative intent.
D It is further more a well-settled principle of law that if the words are
general and not precise, their interpretations are to be restricted to the
fitness of matter. [238-E, F]

1.4. The expressions 'debentures' and 'shares' convey distinct and
E separate meaning although they belong to the same genesis. [239-AJ
"All About Debentures" by Mr. T~M. Sen and Mr. C. Chandrasekhar,
referred to.

1.5. Having regard to the provisions contained in Section 36A of the
M.R.T.P. Act, there cannot be any doubt whatsoever that an inquiry
F proceeding can be initiated when an element of unfair trade practice arises
in the matter of promoting sale, or use of any goods. [240-B, q

Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association ltd, AIR
( 1964) SC 250, referred to ,

G Seliar v. Charles Bright & Co. ltd., reported in 1904, King's Bench
Division at Page 447, referred to.

1.6. The act of inviting offer shares of any company does not get
translated into a kind of service qua the allottee subscriber. Subscription,
therefore, is not in the nature of valuable consideration for any service.
H 1241-GI
R.D. GOY AL v. RELIANCE INDUSTRIES LTD. 233
Lucknow Development Authority v. MK Gupta, 119941 I SCC 243, A
distinguished.

1.7. In the instant case, the action on the part of the company does
not involve any sale of goods or rendition of any service. 1242-DI

2. The expression 'goods' underwent an amendment in the year 1991. B
The relevant notes on clauses are contained in the Statement of Objects
and Reasons of the Monopolies and Restrictive Trade Practices
(Amendment) Bill, 1991. It is, therefore, evident that the said amendment
is not explanatory or clarificatory in nature. By reason thereof, the
definition of goods was sought to be enlarged which will have prospective C
operation. The very fact that the Parliament in its wisdom sought to
enlarge the definition of goods by including the issue of shares by allotment
as also the service is a clear pointer to the fact that thereby the mischief
which was existing in the said provision was sought to be remedied. It is,
therefore, axiomatic that before the said definition of 'goods' was
amended, the matter relating to issue of shares before allotment was not D
included therein. In view of the authoritative pronouncement of this Court,
the shares pending allotment in view of the provisions of law as then existed
could not be said to be goods. (243-G, H; 244-B-D; 246-A]

Morgan Stanley Mutual Fund etc. v. Kartick Das etc., 11994] 4 SCC
225 and Shree Gopal paper Mills ltd. v. Commissioner ofIncome-tax, Central, E
Calcutta, (1970) 77 l.T.R. 543, relied on.

CIVIL APPELLATE JURISDICTION Civil Appeal No. 2490 of
1995.

From the Judgment and Order dated l l .8. l 994 of the MRTP F
Commission, New Delhi in C.A. No. 2443 of 1988.
WITH
(C.A. Nos. 2071-2 l 00 of l 987)

Ms. Indira, Jaising, Anup G. Choudhary and A.N. Haksar, Sanjay G
Parikh, Sanjay Ghosh, Ms. Farheen, A.N. Singh, Ms. Vandana Sudan,
P.H. Parekh, Amit Dhingra, Sanand Ramakrishnan, Pratap Venugopal,
P.S. Sudheer for Mis. K.J. John & Co. Gaurab K. Banerjee, Ms. Shruti
Choudhary, Ms. Sumita Goel, Suman J. Khaitan for Mis. Khaitan & Co.,
Ms. N. Annapoorani, D.N. Mishra for Mis. J.B.D. & Co. A. Subba Rao,
R. Nedumaran, Ms. Enakshi Kulshreetha and Himanshu Shekhar for the H
234 SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A appearing parties.
The Judgment of the Court was delivered by

S.B. SINHA, J : The core question in this batch of appeals is as to
whether shares or convertible debentures even before they are allotted can be
B considered to be "goods" within the meaning of Section 2( e) of the Monopolies
and Restrictive Trade Practices Act, 1969 (the 'M.R.T.P. Act').

The appellants herein pursuant to or in furtherance of an invitation to
offer debentures linked with equity shares for public issue applied therefor.
The respondents are public limited companies. They had offered capital for
C subscription but had linked the equity shares with the accrued redeemable
non-convertible debentures.

A complaint was made to the effect (which is the subject-matter of
Civil Appeal Nos. 2071-2100 of 1987) that the issue of equity shares tied up
with debentures is a restrictive trade practice within the meaning of Sections
D 2(o)(ii), 33(l)(b) and 33(l)(g) of the M.R.T.P. Act. In Civil Appeal No.2490
of 1995, the subject-matter of complaint was that the public issue of debentures
offered by the respondent therein upon certain terms and conditions amounted
to unfair trade practice as the respondent-company in their prospectus for
raising capital through the issue of debentures made false and misleading
E claims.

The said complaints were inquired into by the Director General, who
upon finding a prima facie case, recommended for issuance of notice;
whereafter a proceeding was initiated by the Commission.
-
F The respondents herein raised preliminary objection questioning the
jurisdiction of the Commission to deal with the subject-matter of such ,.
complaints. The Commission on the said preliminary objection, raised the
following issues:

I .(a) Whether having regard to true legal nature and characteristics of
G debentures, the same could be considered as "goods" within the
meaning of Section 2(e) of the M.R.T.P. Act, 1969 even before
they are allotted to the debenture-holder?

(b) Whether it makes any difference to the answer to the foregoing
question, if the debentures offered _by the company are
H compulsorily or optionally convertible into an equity share?
R.D. GOYAL v. RELIANCE INDUSTRIES LTD. [SINHA . .I.] 235
2. Assu111ing that debentures are even prior to their ~llotment A
"goods". whether any trade practice is involved where the
company simply invites applications for allotment of debenture
for the purpose of raising capital for its trade or business?
3. Whether the company provides or makes available any service to
the prospective investors where it simply issues debentures and B
invites application therefor within the meaning of Section 2(r) of
the M.R.T.P. Act"

The said preliminary issues were determined by the Commission in favour of
the respondents herein and against the appellants.

Ms. Indira Jaising and Mr. Anup G. Choudhary, learned senior counsel
c
appearing on behalf of the appellants, inter alia, would submit that the
Con1mission committed a manifest error of law in passing the impugned
judgment insofar as it failed to properly construe the definition of 'goods'
contained in the Sale of Goods Act, 1930 vis-a-vis its definition contained in
Section 2(e) of the M.R. T.P. Amendment Act, 1991, as also the definition of D
service as contained in Section 2(r) thereof. According to the learned counsel
the action on the part of the respondents herein involved unfair trade practice.
The learned counsel would urge that as the 'stocks' and 'shares' come within
the purview of definition of 'goods', it cannot be said that only because they
had not been allotted to the respective applicants, they would not become so. E
In any event, it was submitted, notice inviting offer for purchase of shares in

- lieu of convertible debentures would amount to 'rendition of service' by the
Respondent. It was submitted that the expression 'goods and service' must be
interpreted in a broad manner.

Ms. Indira Jalsing further urged that it may be that the definition of F
, expression 'goods' had been amended in the year 1991 so as to bring within
its purview the shares and stocks including issue of shares before allotment
but such amendment being merely clarificatory in nature, the Commission
must be held to have misdirected itself in holding that shares and debentures
before they are issued do not come within the purview of expression 'goods'.
It was argued that a public limited company offers shares from time to time G
and thus an act of raising capital by allotment of shares would be an act of
'trade' and consequently the same would amount of 'rendition of service'
within the meaning of Section 2 (r) of the Act. Reliance in this connection
has been placed in the case of Lucknow Development Authority v. M.K.
Gupta, [1994] 1 sec 243. H
236 SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A It was further submitted that the decision of this Court in Morgan
Stanley Mutual Fund etc. v. Kartick Das etc., [1994] 4 SCC 225, whereupon
the Commission hqs placed reliance is not applicable to the fact of the present
case as the same was rendered while considering a matter interpreting the
provisions of the Consumers Protection Act, 1986. In any event, as therein
B various questions raised in these appeals had not been considered, the matter
may be referred to a larger Bench for an authoritative pronouncement by this
Court. Mr. Choudhary further submitted that linking shares with debentures
being 'unfair trade practice', the question as to whether the shares or stocks
would amount to 'goods' or not lose significance particularly when having
regard to the various provisions of the Companies Act, allotment of shares
C is not a matter of much importance.

Before adverting to the issues involved in these appeals, relevant
statutory provisions may be looked into.

'Goods' have been defined in the Sale of Goods Act, 1930 to mean :
D
"every kind of moveable property other than actionable claims and
money; and includes stock and shares, growing crops, grass, and
things attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale;"

E The expression 'goods' was defined in Section 2(e) of the M.R.T.P.
Act to mean :

"goods" includes goods produced in India, and, in relation to any
goods, supplied, distributed or controlled in India, also includes goods
imported into India."
F
The aforesaid definition underwent an amendment in 1984 and again in 1991.
Now it reads thus :

"goods" means goods as defined in the Sale of Goods Act, 1930 (3
of 1930), and includes, -
G
(i) products manufactured, processed or mined in India;

(ii) shares and stocks including issue of shares before allotment;

(iii) in relation to goods supplied, distributed or controlled in India,
H goods imported into India;"
R.D. GOYAL v. RELIANCE INDUSTRIES LTD. [SINHA. J.] 237
Section 2 (r) defines "Service" to mean : A
'·service \vhich is niade available to potential users and includes the
provisions of facilities in connection \Vith banking, financing,
insurance, chit fund, real estate, transport processing supply of
electrical or other energy, board or lodging or both, entertain1nent,
amusement or the purveying of news or other information, but does B
not include the rendering of any service free of charge or under a
contract of personal service;"

Section 2(s) defines the term 'trade' to mean

"any trade, business, industry, profession or occupation relating to C
the production supply distribution, or control of goods and includes
the provision of any services;"

Section 2(u) defines the expression "trade practice" as under :

"aay practice relating to the carrying on of any trade, and includes D
(i) anything done by any person which controls or affects the price
charged by, or the method of trading of, any trader or any class of
traders,

(ii) a single or isolated action of any person in relation to any trade;" E

The expression 'debenture' however, is not defined in the Act. The
question therefore, which arises for consideration is as to whether convertible
debentures would be 'goods' within the meaning of provisions of the MRTP
Act.
F
Debentures, as ordinarily understood, in our considered view, would
not come within the purview of definition of goods as it is simply an instrument
of acknowledgement of debt by the company whereby it undertakes to pay
the amount covered by it and till then it undertakes further to pay interest
thereon to the debenture-holders. G
It has been observed by the Company Law Committee in its report
quoted by Ramaiya at page 26 of his commentary :

"A debenture means a document which either creates or
acknowledges a debt. Ordinarily a debenture constitutes a charge on H
238 SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A the undertaking of the company or some part of its property, but
there may be debentures without any such charge and under the law,
it is not necessary that the debentures should create a charge. We
have, therefore, brought the definition of debentures, in line with that
contained in English Companies Act, 1948, which defines 'debentures'
as including 'debenture stock' bonds and other securities of a company,
B whether constituting a charge on the assets of the company or not."

Palmer on Company Law has made similar observations in paragraph
44.02, 24th Edn. He said that in modern commercial usage, a debenture
denotes an instrument issued by the company normally but not necessarily
C called on the face of it a debenture, and providing for the payment of a
specified sum at a fixed rate with interest thereon.

Debentures having regard to the definition of 'actionable claim' as
defined in Section 3 of the Transfer of Property Act would constitute actionable
claims except where they are secured by mortgage of immovable property or
D hypothecation or pledge of immovable property.

It is true that when there exists a statutory definition in respect of an
expression, the dictionary meaning thereof cannot be applied. It is also true
that when a statutory definitio!l uses the word 'includes', it provides an
extended meaning thereto but it is equally well-settled that the words are
E required to be construed in terms of the legislative intent.

It is furthermore a well-settled principle of iaw that if the words are
general and not precise, their interpretations are to be restiicted to the fitness
of matter.

F The Commission in the instant casa was dealing with the question as
to whether the r~spondents herein had resorted to unfair trade practice or not?
In the event they were found to be doing so, it inter alia, could direct that
such practice be discontinued. In a given case, the Commission may grant
temporary injunction or award compensation as provided under Section 12A
G and 12B thereof. As by reason of the provision of the said Act, the right of
the traders can be controlled or restricted, the provisions thereof must receive
a strict construction.

Furthermore, the expressions 'debentures' and 'shares' convey distinct
and separate meaning although they belong to the same genesis. In "All
H About Debentures" by Mr. T.M. Sen and Mr. C. Chandrasekhar, the distinction
R.D. GOYAL v. RELIANCE INDUSTRIES LTD. [SINHA. J.] 239
between the 'shares' and 'debentures' has been stated thus: A
"'Debentures distinguished fro1n:

(a) Shares-Although shares and debentures belong to the same
genesis yet they have distinct and different characteristics. The
Companies Act, 1956 deals with the issue of debentures in the B
same manner as it deals with the issue of shares, but the similarity
ends with the mode and manner of issue, their allotment, their
transferability and in the applicability of forfeiture provisions.
The corpus of the two issues forms two different segments of
capital - shares representing the share capital and the debentures C
representing the loan capital. Shareholders are the owners of the
company till the company is folded up fully while debenture-
holders are only creditors of the company sometimes secured
and sometimes unsecured and that too for a defined period. The
rights of the shareholders and debenture-holders are different as
also their remedies. To the extent the comparison could bear D
between the two, the procedures are by and large the same for
both in the matter of issue, allotment and transfers and forfeiture.
Shares, therefore, are distinct from debentures, although in the
usual parlance they both are grouped together in many legislations
and referred to some times by the generic term of 'scrip'. It is
on account of their free transferability and marketability, they
E
are referred together. The stamp duty on the share certificates
and debenture certificates and on their transfers is totally different
and bears no comparison. The incidents of debenture certificates
as seen from our discussion about above are different from th"
incidents of shares certificates and hence bear no comparison. F
Therefore, there is no equation between shares and debentures
' except as referred to above."

'Share' has been defined in Section 2(46) of the Companies Act to
mean a share in the share capital of a company which in turn would mean
that it would represent contribution of the share-holder towards the share G
capital of the company. On the other hand, a debenture is an instrument of
debt executed by the company acknowledging its receipt to repay the same
at a specified rate and also carrying an interest. It is in sum and substance a
certificate of loan or a bond evidencing the fact that the company is liable to
pay a specified amount with interest and although the money raised by the H
240 SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A debentures becomes a part of the company's capital structure yet it does not
become a share capital. In any event, a debenture would not come within the
purview of definition of goods, in as much as, although the shares and stocks
are included in the definition of goods but debentures are not.

We may also note that having regard to the provisions contained in
B Section 36A of the M.R.T.P. Act, there cannot be any doubt whatsoever that
an inquiry proceeding can be initiated when an element of unfair trade practice
arises in the matter of promoting sale, or use of any goods. Shares before
their allotment, in our opinion, are not goods. In Sri Gopal Jalan & Co. v.
Calcutta Stock Exchange Association ltd., AIR 1964 SC 250, it has been
C held that in Company law "allotment" means the appropriation out of the
previously unappropriated capital of a company, of a certain number of shares
to a person. Till allotment is made, shares do' not exist as such. It is only on
allotment in this sense that the shares come into existence. Therefore, till the
shares are actually issued, the question of the company having issued
debentures as transferable property would not arise and thus the::re cannot be
D any doubt whatsoever that the shares before their allotment would not come
into existence and they cannot be regarded as goods. Debentures would also
not come within the purview of definition of stock. In Sellar v. Charles
Bright & Co. Ltd. reported in (1904), King's Bench Division at page 447, the
law is stated in the following terms :
E ''The Judgments Act, 1838 (I & 2 Viet. C. 110) s.14, speaks of
"any stock or shares of or in any public company in England."
Debentures are neither "stock" nor "shares". A distinction is drawn
between "debenture stock" and "shares or stock" of a company by
the Companies Clauses Act, 1863 (26 & 27 Viet. C.118) s. 23. The
F meaning of "stock" in the section is indicated by its collocation with
"shares" as being something ejusdem generis therewith. If debenture
stock would not be within the section, a fortiori debentures are not:
see Palmer's Company Precedents, 8th ed. Part III. P. 5. Debentures
are clearly not shares. They are simply specially debts due from the
company, which may nor may not be secured by a charge on the
G company's assets. A debenture-holder as such is not a member, but
a creditor of the company. He has no share in the capital of the
company, and his right to payment is not dependent on its profits. He
has not, as a shareholder has, a voice in the management of the
company's affairs. In the case of In re Bodman (I) it was held by
H Chitty J. that a bequest of all the testator's shares in a gas company

~·
•
R.D. GOYAL v. RELIANCE INDUSTRIES LTD. [SINHA.!.] 241

would not pass debenture stock of that con1pany. He said in giving A
judg1nent "Debenture stock therefore stands in a 111aterially different
position from that occupied by proprietary or capital stock of the
company: in other words, debenture stock is borro\ved n1oney
capitalized for purposes of convenience. The words used by this
testator aptly and correctly describe his shares in this gas company.
and I should be improperly extending the meaning of the word 'shares·. B
if I were to hold that it included debenture stock. which. as I have
already explained, is property of a different kind altogether from the
ordinary or proprietary stock of a company."

The matter may be considered from another angle. Under Sections C
44(2) and 56 of the Companies Act, 1956, in the prospectus to be filed with
the Registrar, a statement has to be made as regards amount payable on
application of allotment of each share. One of the particulars required to be
mentioned in the prospectus is the price to be paid for shares or debentures
subscribed for under the options or right. "Subscription" is an amount Q.f
money subscribed for acquiring any periodical or even to acquire right of D
membership in a company or in a club. When a subscriber of any periodical
receives the periodical it is nothing short of purchasing it for a price.

'Price' has been defined in Section 2(1) of the M.R.T.P. Act in the
following terms :
E
''Price", in relation to the sale of any goods or to the performance of
any services, includes every valuable consideration, whether direct or
indirect, and includes any consideration which in effect relates to the
sale of any goods or to the performance of any services although
ostensibly relating to any other matter or thing;" F
The act of inviting offer shares of any company does not get ~ranslated
into a kind of service qua the allottee subscriber. Subscription, therefore, is
not in the nature of valuable consideration for any service.

Reliance on Lucknow Development Authority's case (supra) by Ms. G
Jaising is misplaced. In that case, the National Consumers' Disputes Redressal
Commission was concerned with the question of interpretation of the term
"consumer" within the meaning of the Consumer Protection Act, 1986. It
was held that :

" ...... The right thus to approach the Commission or the Forum H
242 SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A vests in consumer for unfair trade practice or defect in supply of
goods or deficiency in service. The word 'consumer' is a
comprehensive expression. It extends from a person who buys· any
commodity to consume either as eatable or otherwise fron1 a shop,
business house; corporation, store, fair price shop to use of private or
public services. In Oxford Dictionary a consumer is defined as, "a
B purchaser of goods or services". In Black's Law Dictionary it is
explained to mean, "one who consumes. Individuals who purchase,
use, maintain, and dispose of products and services, A member of
that broad class of people who are affected. by pricing policies,
financing practices, quality of goods and services, credit reporting,
c debt collection, and other trade practices for which state and federal
consumer protection laws are enacted .. "

In the instant case, the action on the part of the company, in our opinion,
does not involve any sale of goods or rendition of any service.

D The pointed issue is squarely covered by a decision of this Court in
Morgan Stanley Mutual Fund (supra). Therein this Court was considering a
question as to whether share for allotment of which only an application has
been· made was goods as defined under Section 2( I )(i) of the Consumer
Protection Act, 1986. The said section reads as under :

E " 'goods' means goods as defined in the Sale of Goods Act, 1930."
The definition of 'goods' as contained in the aforementioned provision
is in pari-materia with the provisions of the said Act. It was held that:
\
"As to the scope of this clause, reference may be made to Maneckji
F Pestonji Bharucha v. ·Wadi/al Sarabhai & Co. It was observed thus:

"The Company is entitled to deal with the shareholder who is on
the register, and only a person who is on the register is in the full
sense of the word owner of the share. But the title to get on the
register consists in the possession of a certificate together with a
G transfer signed by the registered holder. This is what Bharucha had.
He had the certificates and blank transfers, signed by the registered
holders. It would be an upset of all Stock Exchange transactions if it
were suggested that a broker who sold shares by general description
did not implement his bargain by supplying the buyer with the
H certificates and blank transfers, signed by the registered holders of
R.D. GOY AL v. RELIANCE INDUSTRIES LTD. [SINHA. J.] 243

the shares described. Bharucha sold what he had got. He could sell A
no more. He sold what in England would have been choses in action,
and he delivered choses in action. But in India, by the terms of the
Contract Act, these choses in action are goods. By the definition of
goods as every kind of moveable property it is clear that not only
registered shares, but also this class of choses in action, are goods. B
Hence equitable considerations not applicable to goods do not apply
to share in India."

29. Again in Madho/al Sindhu of Bombay v. Official Assignee of
Bombay it was held thus :

"A sale according to the Sale of Goods Act (and in India goods C
include shares of joint stock companies) takes place when the property
passes from the ·seller to the buy~r."

Therefore, at the stage of application it will not be goods. After
allotment different considerations may prevail.
D
30. A fortiori, an application for allotment of shares cannot constitute
goods. In other words, before allotment of shares whether the applicant
for such shares could be called a consumer? In CIT v. Standard
Vacuum Oil Co. while defining shares, this Court observed ·
E
"A share is not a sum of money; it represents an interest measured
by a sum of money and made up of diverse rights contained in the
contract evidenced by the articles of association of the Company."

31. Therefore, it is after allotment, rights may arise as per the contract
(Article of Association of Company). But certainly not before F
allotment. At that stage, he is only a prospective investor (sic in)
future goods."

Furthermore, as noticed hereinbefore, the expression 'goods', underwent
an amendment in the year 1991. The relevant notes on clauses as contained
in the Statement of Objects and Reosons of the Monopolies and Restrictive G
Trade Practices (Amendment) Bill, 1991 (Bill No.198of1991) speaks thus:-

"Clause 2 seeks to enlarge the definition of 'goods' by including
issue of shares before allotment. The scope of the definition of 'service'
is also being enlarged by including chiHund. An explanation has
H
244 SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A also been added that any deals in real estate shall be deemed to be
included in 'service"'

It is, therefore, evident that the said amendment is not explanatory or
clarificatory in nature. By reason thereof, the definition of goods was sought
to be enlarged which will have prospective operation. The very fact that the
B Parliament in its wisdom sought to enlarge the definition of goods by including
the issue of shares by allotment as also the service is a clear pointer to the
fact that thereby the mischief which was existing in the said provision was
sought to be remedied.

C It is, therefore, axiomatic that before the said definition of 'goods' was
amended, the matter relating to issue of shares before allotment was not
included therein.

In Shree Gopal Paper Mills Ltd v. Commissioner ofIncome-tax, Central,
Calcutta, (l 967) 37 Comp. Cas 240, the question which fell for consideration
D before a Bench of the Calcutta High Court was the meaning and scope of the
words "share", "issue of share" vis-a-vis "bonus share" issued to them. The
Calcutta High Court noticed the decision of this Court in Sri Gopal Jalan &
Co. v. Calcutta Stock Exchange Association Ltd., (I 963) 33 Comp. Cas. 862
wherein it was held that allotment of share means appropriation of unissued
shares to a specified number of persons. It was further held that issue of
E shares is something distinct from allotment and is subsequent ~.ct whereby
the title of the allottee becomes complete.

The matter thence came up before this Court in Shree Gopal Paper
Mills Ltd. v. Commissioner of Income-tax, Central, Calcutta, [1970] 77 l.T.R.
543. It was held by the High Court that a share cannot be held to have been
F
issued unless a share certificate is given to the concerned person. This Court,
however, disagreed with the view of the High Court only to the aforementioned
extent.

It was noticed:
G
"The words "allot" and "distribute" found in clause (b) of the resolution
do not carry the matter further. Their meaning should be gathered
from the· context in which they were used. Clauses (b) and (c) of the
resolution must be read harmoniously with clause (a). The word
"allotment" has not been defined in the Companies Act. The meaning
H of the word "allot" or "allotment" will have to be gathered from the
R.D. GOY AL v. RELIANCE INDUSTRIES LTD. [SINHA. J.] 245

context in which those words are used. This court considered the A
meaning of the word "allotment" in Sri Gopal Jalan and Co. v.
Calcutta Stock Exchange Association Ltd. Therein, it referred to a
large number of English decisions which have considered the meaning
of that word. In that decision this Court referred to the observations
of Chitty J. in In re Florence Land and Public Works Co.:
B
"To my mind there is no magic whatever in the term 'allotment'
as used in these circumstances. It is said that the allotment is an
appropriation of a specific number of shares. It is an appropriation,
not of specific shares, but of a certain number of shares."

In Sri Gopal Jalon 's case Sarkar J (as he then was) quoted with C
approval the following passage from Farwell L.J. in Mosley v.
Kof!Yfontain Mines Ltd.:

"As regards the construction of these particular articles, it is plain
that the words 'creation', 'issue' and 'allotment' are used with three D
different meanings familiar to business people as well as to lawyers.
There are three steps with regard to new capital; first, it is created;
till it is created the capital does not exist at all. When it is created it
may remain unissued for years, as indeed it was here; the market did
not allow of a favourable opportunity of placing it. When it is issued
it may be issued on such terms as appear for the moment expedient. E
Next comes allotment. To take the words of Sterling J. in Spitzel v.
Chinese Corporation, he says: 'What is an allotment of shares. Broadly
speaking, it is an appropriation by the directors or the managing body
of the company of shares to a particular person"'

After examining the various decisions, Sarkar J. observed : F

"It is beyond doubt from the authorities to which we have earlier
referred, and there are many more which could be cited to show the
same position, that in company law 'allotment' means the appropriation
out of the previously unappropriated capital of a company, of a certain G
number of shares to a person. Till such allotment the shares do not
exist as such. It is on allotment in this sense that the shares come into
existence"

In view of the aforementioned authoritative pronouncement of this Court
it must be held that shares pending allotment in view of the provisions of law H
246 SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A as thence existed could not be said to be goods.

For the aforementioned reasons, it is not necessary to go into the other
questions raised at the Bar.

For the views, we have taken, the judgment of the Commission cannot
B be found fault with.

These appeals are dismissed accordingly. No costs.

S.K.S. Appeals dismissed.