Forward sale of marketable shares prohibited; attached funds of a notified party had to be deposited with interest.

A forward sale of marketable shares was treated as prohibited under the Securities Contracts (Regulation) Act, 1956 because the decisive test was marketability, not whether the shares were listed on a stock exchange. The transaction was therefore ineffective. Separately, property belonging to a notified party stood statutorily attached on notification under the Special Court Act, and the amount in question remained the notified party's property because the alleged forward sale could not be given effect to. The surrounding circumstances were also viewed as consistent with an arrangement intended to defeat the statutory scheme, so the amount was required to be deposited with interest.

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Issues: (i) Whether the forward sale of 1 lakh shares of a public limited company was prohibited by the Securities Contracts (Regulation) Act, 1956. (ii) Whether the amount of Rs. 4,00,10,000 stood attached under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992 and was liable to be deposited with the Custodian.

Issue (i): Whether the forward sale of 1 lakh shares of a public limited company was prohibited by the Securities Contracts (Regulation) Act, 1956.

Analysis: The expression "securities" in the regulatory scheme was read as covering marketable securities and not being confined only to securities listed on a stock exchange. The transaction reflected in the letter dated 8 April 1992 was a forward sale, and the Court held that the Act regulated transactions in securities throughout India. The legislative object and the statutory framework showed that a forward sale of such shares was not permissible, even where the shares were not listed, because the decisive test was marketability and not actual listing.

Conclusion: The forward sale was illegal and prohibited.

Issue (ii): Whether the amount of Rs. 4,00,10,000 stood attached under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992 and was liable to be deposited with the Custodian.

Analysis: Under Section 3(3), property belonging to a notified party stands attached on notification, and under Section 3(4) it is to be dealt with as directed by the Special Court. The amount admittedly belonged to the notified party and, on the date of notification, remained his property because the alleged forward sale could not be given effect to. The Court also found the surrounding circumstances consistent with an artificial arrangement intended to defeat the statute.

Conclusion: The amount stood attached and the petitioners were bound to deposit it with interest.

Final Conclusion: The challenge to the custodian's order failed, while the custodian's application for deposit of the attached amount succeeded, resulting in dismissal of the petition and allowance of the connected application.

Ratio Decidendi: A forward sale of marketable shares is prohibited under the Securities Contracts (Regulation) Act, 1956, and property belonging to a notified person stands statutorily attached on notification under the Special Court Act, defeating any private arrangement inconsistent with that attachment.

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