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2014 DIGILAW 1674 (BOM)

Satellite Developers Ltd. v. Sumermal M. Bafna

2014-07-31

S.C.GUPTE

body2014
JUDGMENT P.C. : In this Motion, the Defendants have objected to the maintainability of the Suit on the ground of bar of limitation. There is a preliminary issue already framed by this Court concerning the bar of limitation. The parties intend to lead oral evidence on the preliminary issue. Plaintiffs have tendered their compilation of documents together with the affidavits of evidence filed by Plaintiff No.5 (P.W.1) and Umesh Merchant (P.W.2) in lieu of examination-in-chief inter alia for proving the documents. 2. Sr. Nos. 1, 2 and 3 of the list of documents are (i) original agreement dated 14 April 1989 executed between the Plaintiffs and Defendant Nos.1 to 9, (ii) original ancillary agreement dated 14 April 1989 executed between the Plaintiffs and Defendant Nos.1 to 9 and (iii) original supplemental agreement dated 20 November 1993 executed between the Plaintiffs and Defendant Nos. 1 to 9. The Plaintiffs' witness – P.W. 1 has deposed to the execution of these documents in paras 5, 6 and 11 of the affidavit in lieu of examination-in-chief . Apart from the deposition of the Plaintiffs' witness as to the execution of the documents, originals of which are tendered, it needs to be noted that there is no particular dispute raised as to the execution of these documents in para 2(d) or para 6 of the written statement of the Defendants. The execution of the supplemental agreement is not disputed in para 7(f) of the written statement. The execution of the documents can be fairly said to be proved. 3. Learned Counsel for the Defendants, however, objects to these three documents being admitted in evidence on the ground of insufficiency of stamp duty paid thereon. It is submitted that the agreement dated 14 April 1989 read with the ancillary agreement of the same date, considered as a whole, clearly indicates that the real transaction between the parties was of sale of immovable property. It is submitted that this immovable property was the only asset of Defendant No.10 Company. It is submitted that whilst construing an instrument for the purposes of ascertaining the charge of stamp duty, one ought not to go by the label of the instrument but must look at the substance of the document. 4. Section 3 of the Bombay Stamp Act makes it clear that what is chargeable with the duty indicated in Schedule I to the Act is the instrument. 4. Section 3 of the Bombay Stamp Act makes it clear that what is chargeable with the duty indicated in Schedule I to the Act is the instrument. The instrument is defined in Clause (l) of Section 2 of the Bombay Stamp Act. The instrument includes every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded. If one has a look at the instrument in the present case, the instrument purports to create a liability to transfer shares in Defendant No.10 Company at a future date. The shares of Defendant No.10 Company, which is a Private Limited Company, cannot be termed as “marketable security” as defined under Clause (o) of Section 2 of the Bombay Stamp Act. Our Court in the case of Dahiben Umedbhai Patel v/s Norman James Hamilton [1982 Bombay Law Reporter, 275] considered the question whether the shares of a Private Limited Company could be covered by the definition of marketable security. The Court considered the character of free transferability as an essential condition for terming the shares as marketable security. The Court, on an analysis of the restriction on transfer of shares in private companies as an essential characteristic of such shares, came to the conclusion that the definition of securities will only take in shares of a public limited Company notwithstanding the use of the words “any incorporated Company or other body corporate” in the definition given in the securities contract (Regulation) Act. No doubt, the Court was in that case concerned with the definition of a 'marketable security' in the Securities Contracts (Regulation) Act, but the discussion throws illuminating light on the very meaning of a marketable security. In any event, it cannot possibly be suggested that shares of Defendant No.1 Company can possibly be sold on a stock market in India. The shares not being marketable securities within the meaning of the expression “marketable security” used in Bombay Stamp Act, an agreement for sale of these shares falls under the residual clause, namely, Clause (h) of Article 5 to Schedule I of the Bombay Stamp Act. Such agreements were required, as was the law when the concerned agreements were executed between the parties, to be stamped with the stamp duty of Rs.10. 5. Such agreements were required, as was the law when the concerned agreements were executed between the parties, to be stamped with the stamp duty of Rs.10. 5. It is of essence that when one considers the chargeability of an instrument to stamp duty one has to look at the instrument, as it stands. One cannot look at the underlying objective of the parties in executing the instrument. Learned Counsel for the Defendants relied on a judgment of our Court in the case of Hanuman Vitamins Foods Pvt. Ltd. V/s State of Maharashtra [1989 Bombay Law Reporter 398] and a judgment of the Supreme Court in the case of Ruby Sales And Services (P) Ltd. V/s State of Maharashtra [(1994) 1 Supreme Court Cases 531] in support of his submission that one must look at the real transaction underlying the particular instrument. In the case of Hanuman Vitamins (supra), our Court was concerned with an agreement of transfer of shares in a Co-Operative Society. It was submitted on behalf of the transferees that the instrument merely transferred shares belonging to the vendor shareholder in a Co-Operative Society and nothing more. Our Court, after analyzing the nature of property of a member of a Co-Operative Housing Society, came to the conclusion that what was transferred was not merely shares belonging to the vendor shareholder but the right to use and occupy the premises which go along with such transfer and which is a specie of immovable property. Our Court held that it would be a travesty of truth to hold that the document in that case, being an instrument of transfer under the stipulated form of transfer purported to transfer only the shares and nothing beyond the shares. In these premises, our Court came to the conclusion that having regard to the substance of the instrument, the instrument was chargeable as conveyance under Article 25 of Schedule I of the Stamp Act. No doubt one has to look at the substance of the instrument and but this is not to say that one has to look at the underlying transaction or the real objective of the parties in executing the particular instrument. No doubt one has to look at the substance of the instrument and but this is not to say that one has to look at the underlying transaction or the real objective of the parties in executing the particular instrument. It may well be that when the parties entered into an agreement to sell shares of Defendant No.10 Company what they had in mind was to really takeover the property of the company being the immovable property owned by it, but the document of transfer of shares is not any the less an instrument of transfer of shares for that reason. The substance of the instrument is transfer of shares in a Private Limited Company. The judgment of our Court in Hanuman Vitamins has no application to the facts of the present case. In the case of Ruby Sales & Services Pvt. Ltd. (supra), the Supreme Court was concerned with a consent decree which purported to transfer immovable property between the parties. The Supreme Court observed that a consent decree was after all an agreement between the parties put in a shape of a consent decree. By putting an agreement in the shape of a consent decree the parties could not expect to change the contents of the document. It would still remain an agreement and would be subject to all rights and liabilities which any agreement might suffer. Having a stamp of the Court affixed would not change the nature of the document, namely, a document to transfer rights in immovable property in favour of a party to it. It was nothing but conveyance and ought to be stamped as such. The decision of the Supreme Court has absolutely no bearing on the facts of our case where, the substance of the transaction, as noted above, is to transfer shares of Defendant No.10 Company. 6. It was next contended by learned Counsel for the Defendants that the document executed between the parties was not an executory agreement relating to transfer of shares but transfer of shares itself. It was submitted on the basis of the averments made in para 9 of the plaint that there was no further document of transfer necessary to confer rights on the Plaintiffs and that the agreement between the parties was an instrument of transfer. It was submitted on the basis of the averments made in para 9 of the plaint that there was no further document of transfer necessary to confer rights on the Plaintiffs and that the agreement between the parties was an instrument of transfer. If one has regard to the agreement for sale of shares executed between the parties in the present case, it is quite clear that the agreement did contemplate completion of the sale by execution and delivery of transfer forms for transfer of the shares agreed to be sold in favour of the Plaintiffs, as also delivery of the certificates in respect of the shares agreed to be sold. In fact, the Plaintiffs have prayed for an order and decree against the Defendants to deliver share certificates in respect of the suit shares together with execution of transfer deeds in favour of the Plaintiffs as part of the specific performance prayed for in the suit. Merely because the Plaintiffs claim beneficial ownership by reason of payment of the entire consideration for the suit shares coupled with possession of the suit shares, it cannot possibly be suggested that the parties between themselves contemplated doing away with the execution of transfer deeds and contemplated the suit agreements to the instruments of transfer. 7. In that view of the matter, there is no substance in the objection to the admissibility of the documents on the ground of insufficiency of stamp duty paid thereon. The documents, namely, the three agreements at Sr. Nos. 1 to 3 ought to be marked in evidence. Learned Counsel for the Defendants has no objection if the copies of these documents are marked in evidence on the undertaking of the Plaintiffs that they will produce the originals of the documents marked in evidence as and when required in the course of the trial. 8. Accordingly, the documents at Sr. Nos. 1, 2 and 3 are respectively marked as “P1”, “P2” and “P3”. 9. The next item is photocopies of the papers and proceedings in Writ Petition No.7104 of 2002. Learned Counsel for the Defendants has no objection to these documents being admitted on record. The document is accordingly marked as “P4” collectively. 10. The next documents are photo copies of printouts of emails and drafts sent by D.B. Realties Ltd. to Plaintiff No.1 on 6 May 2010, 7 May 2010 and 11 May 2010. Learned Counsel for the Defendants has no objection to these documents being admitted on record. The document is accordingly marked as “P4” collectively. 10. The next documents are photo copies of printouts of emails and drafts sent by D.B. Realties Ltd. to Plaintiff No.1 on 6 May 2010, 7 May 2010 and 11 May 2010. These documents have been sought to be proved through P.W. 2 in para 9 of his affidavit in lieu of examination-in-chief. Mr. Umesh Merchant has deposed to these emails and the receipt thereof by the Plaintiffs. Learned Counsel for the Defendants objects to these documents being taken on record on the ground firstly, that these are third party documents and secondly, that they are documents sent without prejudice to the rights of the parties. Thirdly, it is submitted that they are not proved in accordance with the formal requirements under Section 65B of the Evidence Act. 11. As far as the Defendants' objection to these documents on the ground that they are third party documents is concerned, the objection would be adequately taken care of if it is clarified that the marking of these documents merely signifies receipt of these documents from the sender and does not signify truth of the contents of the documents. 12. The objection to the admissibility on the ground of the 'without prejudice' nature of the documents, is based on Section 23 of the Evidence Act. It is submitted that these documents are sought to be relied upon as admissions, but they are not relevant as admissions since they are made either upon an express condition that evidence of them is not to be given, or under circumstances from which the Court can infer that the parties agreed that such evidence should not be given. Firstly, it is by no means clear as to what is the precise purpose of using these documents in evidence. Whether they are used as admissions of the party against whom they are used or as background facts to explain the conduct of the parties or for any other purpose, is not still known. The documents are certainly in connection with the disputes and bear on the controversy, and generally said to be relevant, though the exact purpose to ascertain their relevancy will be clear only at the time of submissions. The documents are certainly in connection with the disputes and bear on the controversy, and generally said to be relevant, though the exact purpose to ascertain their relevancy will be clear only at the time of submissions. Even if the documents are admitted on record, their relevancy from the point of view of the purpose sought to be achieved, can always be open to debate at the hearing of the suit. Secondly, merely because a document is marked 'without prejudice', it does not, without anything more, imply an agreement between the parties that evidence of it is not to be given or constitute a circumstance from which the Court has to infer such agreement. Simply considered, a 'without prejudice' document means that it cannot bind the parties or prejudice their rights and contentions. It does not necessarily mean that the document cannot be tendered in evidence. We are in the midst of leading of evidence. So far there is no such agreement brought out in evidence. But, it is possible to give evidence even now of an agreement that the documents were not to be produced in evidence. This will have to await leading of entire evidence in the suit. As of now, the documents can certainly be marked in evidence subject to keeping the issue of relevancy from the point of view of an admission open. 13. As for the formal proof insisted upon by the Defendants, it must be noted that there is no serious contest on the veracity of the documents per se. The real contest is on the nature of the document and its use as an admission by the Plaintiffs. Para 9 of the affidavit in lieu of examination-in-chief of PW 2 adequately proves the receipt of the documents by the Plaintiffs. The probative value of these documents and whether or not they can be used against the Defendants as their admission will be decided in the course of trial. Marking of these documents, as noted above, does not signify the truth of the contents thereof. Accordingly, the documents are marked collectively Exhibits “P5” with the clarification noted above. 14. The next document is the original envelope used to send the letter dated 5 October 2010 addressed by Plaintiff No.1 to Defendant No.1. The original envelope is produced by the Plaintiffs. Accordingly, the documents are marked collectively Exhibits “P5” with the clarification noted above. 14. The next document is the original envelope used to send the letter dated 5 October 2010 addressed by Plaintiff No.1 to Defendant No.1. The original envelope is produced by the Plaintiffs. The Plaintiffs' witness – PW No.2 has deposed in para 11 of his affidavit in lie of examination-in-chief to the original document. The averments made in para 11 adequately prove the original document produced. The learned Counsel for the Defendants has no objection to a copy of this document being marked in evidence on the undertaking of the Plaintiffs to produce the original in the course of the trial as and when required. Accordingly, the document is marked as “P6”. 15. The next document is the original letter dated 5 October 2010 itself. This document, together with the signature thereon, is duly proved by the Plaintiffs' witness P.W.2 through his deposition in para 11 of his affidavit in examination-in-chief . Copy of the document is marked in evidence as “P7”. 16. The next document is the original letter addressed by Plaintiffs' Solicitor to Defendant Nos. 1 to 10. The document is marked as Exhibit “P8”. 17. It is clarified that the two documents which are marked as “P7” and “P8” are marked subject to proof of the truth of their contents. 18. Place this matter for cross-examination on 22 August 2014 at 3 p.m.