Case Note & Summary
The appeal before the Supreme Court concerned the interpretation of Section 73(1A) of the Companies Act, 1956, which deals with the listing of shares on stock exchanges. The appellant company had issued a public prospectus and applied to three stock exchanges for permission to deal in its shares. On 31 May 1994, the appellant company issued a prospectus offering 27,40,000 equity shares of Rs.10 each, stating that applications had been made to the Coimbatore, Bombay, and Madras Stock Exchanges. The subscription list closed on 19 July 1994. The allotment of shares was finalised on 16 September 1994. The Coimbatore Stock Exchange granted permission on 26 September 1994, and trading commenced there on 7 October 1994. The Madras Stock Exchange granted permission on 20 October 1994. However, the Bombay Stock Exchange, after sending reminders on 18 August and 12 September 1994, rejected the company's application on 28 September 1994 because the company failed to complete the required formalities. The city-wise break-up of allotment showed 17,44,600 shares in Bombay, 3,45,400 in Coimbatore, and 2,89,900 in Madras. The core legal issue was whether the entire allotment of shares became void under Section 73(1A) because the Bombay Stock Exchange rejected the application, even though the Coimbatore Stock Exchange had granted permission within the prescribed ten-week period. In particular, the court had to interpret the word 'each' in the expression "if the permission has not been granted by the stock exchange or each such stock exchange". The appellant's counsel, F.S. Nariman, contended that the rejection by Bombay did not render the entire allotment void because Coimbatore had granted permission, relying on the earlier Supreme Court decision in Union of India v. Allied International Products Ltd. The respondent's counsel, Harish Salve, argued that the entire allotment was void where any one of the stock exchanges to which application was made rejected the application, and he referred to the legislative history that led to the insertion of sub-section (1A). The Supreme Court examined Section 73 before and after the amendment. It noted that in Allied International Products Ltd., the Supreme Court had held that approval by any one of the named stock exchanges was sufficient compliance. The Parliament then amended Section 73 by inserting sub-section (1A), and the Statement of Objects and Reasons indicated that the amendment sought to overcome that decision by requiring enlistment with all stock exchanges mentioned in the prospectus. The court referred to dictionary meanings of 'each' and 'every' and held that the expression 'each such stock exchange' in sub-section (1A) means every or all such stock exchanges named in the prospectus. Consequently, the failure to obtain permission from any one of them renders the entire allotment void. The court reasoned that this construction promotes the legislative object of protecting investors and underwriting institutions. Accordingly, the Supreme Court held that the entire allotment of shares was void because the Bombay Stock Exchange rejected the application, and the grant of permission by Coimbatore and Madras Stock Exchanges did not cure the defect. The appeal was dismissed.
Headnote
A) Corporate Law - Listing of Securities - Meaning of 'Each Such Stock Exchange' - Companies Act, 1956, Section 73(1A) - The court interpreted the word 'each' in the expression 'if the permission has not been granted by the stock exchange or each such stock exchange' to mean every one or all such stock exchanges named in the prospectus. The dispute arose when a company offering shares sought listing on three stock exchanges but obtained permission from only one within the statutory ten-week period; the court held that the entire allotment was void because permission was not granted by each named exchange. Held, the requirement is conjunctive, not disjunctive; permission from one exchange does not suffice (Paras 1-5). B) Statutory Interpretation - Legislative Intent - Overruling Allied International Products Ltd. - Companies Act, 1956, Section 73(1A) and Securities Contracts (Regulation) Act, 1956, Section 22 - The court examined the Statement of Objects and Reasons for the amendment inserting sub-section (1A) and concluded that the legislature intended to overcome the Supreme Court's earlier decision in Union of India v. Allied International Products Ltd., which had held that approval by any one of the named stock exchanges was sufficient compliance. The amendment was designed to protect investors and underwriting institutions by requiring enlistment with all stock exchanges mentioned in the prospectus. Held, the plain language of sub-section (1A), read with legislative history, mandates permission from each and every named stock exchange, and failure by even one renders the allotment void (Paras 1-5). C) Securities Law - Allotment of Shares - Consequences of Non-Compliance - Companies Act, 1956, Section 73(1A) - Where a prospectus states that applications have been made to more than one recognised stock exchange, any allotment made in pursuance of such prospectus is void unless permission has been granted by each such stock exchange before the expiry of ten weeks from the date of closing of the subscription lists. In this case, the Bombay Stock Exchange rejected the company's application for non-compliance with formalities, while Coimbatore and Madras Stock Exchanges had granted permission, but the court held the entire allotment void, including shares allotted to applicants in cities where permission was granted. Held, the statutory condition is strict and non-waivable (Paras 1-5).
Issue of Consideration
Whether the entire allotment of shares is rendered void under Section 73(1A) of the Companies Act, 1956 when one of several named stock exchanges rejects the application for permission, despite another stock exchange granting permission within the prescribed period; and the meaning of the word 'each' in the expression 'if the permission has not been granted by the stock exchange or each such stock exchange'.
Final Decision
The Supreme Court held that the word 'each' in Section 73(1A) means every one or all such stock exchanges named in the prospectus. Consequently, unless permission is granted by each and every one of all the stock exchanges named in the prospectus for listing of shares, the entire allotment is void. The rejection by the Bombay Stock Exchange rendered the entire allotment of shares void, even though Coimbatore and Madras Stock Exchanges had granted permission. The appeal was dismissed.
Law Points
- The word 'each' in Section 73(1A) Companies Act
- 1956 means 'every one' or 'all'
- Where prospectus mentions more than one recognised stock exchange
- permission must be granted by each and every such exchange before expiry of ten weeks from closing of subscription lists
- If permission not granted by any one of the named stock exchanges
- the entire allotment of shares is void
- even if permission granted by another exchange
- Amendment inserted to overcome Union of India v. Allied International Products Ltd.
- Legislative intent is to protect investing public and underwriting institutions by requiring enlistment with all stock exchanges mentioned.
