Buyback covenant unenforceable under securities law; future share repurchase was not a valid spot delivery contract.

A buyback covenant in a share purchase agreement was treated as an agreement for future repurchase of shares, not a permissible spot delivery contract. The court applied the Securities Contracts (Regulation) Act, 1956 and held that only spot delivery contracts are permitted; the contingent form of the arrangement did not validate it. A prior Division Bench ruling under the Bombay Securities Contracts Control Act, 1925 was distinguished because its definition of ready delivery contract was materially different. The claim was also held unsuitable for a summary suit under Order 37 of the Code of Civil Procedure, and unconditional leave to defend was granted.

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Issues: Whether the buyback arrangement in the share purchase agreement was unenforceable as being hit by the Securities Contracts (Regulation) Act, 1956, and whether the summons for judgment in the summary suit could therefore be dismissed with unconditional leave to defend.

Analysis: The buyback covenant was treated as an agreement for future repurchase of shares and not as a permissible spot delivery contract. The Court held that the scheme of the Securities Contracts (Regulation) Act, 1956 permits only spot delivery contracts, and that the contingent character sought to be attributed to the arrangement did not save it. The Division Bench decision under the Bombay Securities Contracts Control Act, 1925 was distinguished because the statutory definition of ready delivery contract under that enactment was materially different from the definition of spot delivery contract under the 1956 Act. On a conjoint reading of the relevant clauses, the arrangement was found to be a future performance obligation and not a valid contract of the kind permitted by the statute. The Court further held that such a claim could not be pursued in a summary suit under Order 37 of the Code of Civil Procedure, 1908.

Conclusion: The buyback arrangement was held unenforceable in law, and the defendants were granted unconditional leave to defend. The summons for judgment was dismissed.

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