Instalment share purchase agreements and securities prohibitions: unpaid price unrecoverable, but part-cause jurisdiction sustained.

An agreement for purchase of shares by instalments did not amount to a completed sale in presenti, so the plaintiff could not recover the unpaid price of shares not yet purchased; the proper remedy, if any, was damages for breach. The contract was also held illegal and unenforceable because it contravened the securities notification issued under Section 16 of the Securities Contracts (Regulation) Act, 1956. Territorial jurisdiction was upheld because instalments were payable at Shimla and part of the cause of action arose there. On these principal issues, the plaintiff's suit failed.

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Issues: (i) whether the plaintiff was entitled to recover the suit amount on the basis of the agreement for purchase of shares by instalments, (ii) whether the suit was barred under the Securities Contracts (Regulation) Act, 1956, and (iii) whether the court had territorial jurisdiction.

Issue (i): whether the plaintiff was entitled to recover the suit amount on the basis of the agreement for purchase of shares by instalments.

Analysis: The claim rested on an agreement under which defendant No. 2 undertook to buy six lakhs shares over a period of eight years and to pay the price in instalments. The agreement did not show an immediate or completed sale of the shares in presenti. Since shares are goods within the meaning of the Sale of Goods Act, the contract had to be a completed contract of sale at the time of execution. As the transaction contemplated future purchase over time, the plaintiff could not sue for the unpaid price of shares that had not yet been purchased; the proper remedy, if any, was for damages for breach.

Conclusion: The plaintiff was not entitled to recover the suit amount, and this issue was decided against the plaintiff.

Issue (ii): whether the suit was barred under the Securities Contracts (Regulation) Act, 1956.

Analysis: The agreement for sale of the shares was examined in the light of the statutory notification issued under Section 16 of the Securities Contracts (Regulation) Act, 1956. The plaintiff's reliance on the Industrial Development Bank of India notification and on Section 18(7) of the Sick Industrial Companies (Special Provisions) Act, 1985 was found unhelpful. The court held that the contract fell within the prohibition created by the 1969 notification issued under Section 16, and a contract made in contravention of that notification was illegal under Section 16(2).

Conclusion: The suit was barred by the Securities Contracts (Regulation) Act, 1956, and this issue was decided against the plaintiff.

Issue (iii): whether the court had territorial jurisdiction.

Analysis: Although the agreement was executed outside Himachal Pradesh, the instalments were payable at Shimla and some instalments were in fact remitted there. Applying the principle that the debtor must seek the creditor, the court held that part of the cause of action arose at Shimla.

Conclusion: The court had territorial jurisdiction, and this issue was decided in favour of the plaintiff.

Final Conclusion: In view of the findings on the principal issues, the plaintiff's suit failed and was dismissed.

Ratio Decidendi: Where an agreement contemplates future purchase of shares in instalments and does not amount to a completed sale in presenti, the unpaid price of shares not yet purchased cannot be recovered as a debt, and a contract made in contravention of a prohibitory securities notification is illegal.

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