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Issues: (i) Whether ready forward transactions in securities were prohibited and illegal under the Securities Contracts (Regulation) Act, 1956 and the Banking Regulation Act, 1949, including where the securities were not listed on a stock exchange. (ii) Whether such transactions could be severed into valid and invalid legs, and whether title, attachment, or restitution followed when the transaction was held illegal.
Issue (i): Whether ready forward transactions in securities were prohibited and illegal under the Securities Contracts (Regulation) Act, 1956 and the Banking Regulation Act, 1949, including where the securities were not listed on a stock exchange.
Analysis: The statutory scheme was held to regulate dealings in marketable securities and not merely listed securities. The inclusive definition of securities, the prohibition created by the notifications issued under sections 13 and 16, the limited exception for spot delivery contracts, and the scheme of listed and unlisted securities under section 22A showed that the Act applied to securities capable of marketability. The Reserve Bank circulars were treated as binding prohibitions for banks. On that basis, ready forward transactions were treated as transactions forbidden by law.
Conclusion: The issue was decided against the parties supporting the validity of the transactions and in favour of the view that ready forward transactions were illegal and void.
Issue (ii): Whether such transactions could be severed into valid and invalid legs, and whether title, attachment, or restitution followed when the transaction was held illegal.
Analysis: A ready forward transaction was treated as one composite contract with a firm commitment to repurchase or resell, so the first and second legs could not be artificially split without rewriting the bargain. Because the transaction was void, no right, title or interest passed to third parties through such contracts, and the properties remained liable to statutory attachment. Section 65 was held to depend on the facts, but restitution, if any, would arise only at the stage of distribution under the Special Court framework.
Conclusion: The issue was decided against severance and against any claim that title had passed under the illegal contract, subject to factual restitution claims being considered at the distribution stage.
Final Conclusion: The legal question was answered in favour of treating ready forward transactions as unlawful under the relevant securities and banking regime, with attached properties remaining available for statutory administration and distribution under the Special Court mechanism.
Ratio Decidendi: A composite ready forward transaction in marketable securities, entered into in contravention of the securities law regime and binding banking prohibitions, is void in law and cannot be severed so as to confer title or defeat statutory attachment.
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