# MORGAN STANLEY MUTUAL FUND v. KARTICKDAS

- **Citation:** [1994] Supp. 1 S.C.R. 136
- **Court:** Supreme Court of India
- **Decided:** 1994-05-20
- **Case number:** Writ Petition (W.P. A No. 14 of 1994
- **Bench:** M.N. Venkatachaliah, S. Mohan, Dr. A.S. Anand
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/morgan-stanley-mutual-fund-v-kartickdas-12382
- **Pages:** 27

## Headnote

Consumer Protection Act 1986, Secs. 2(1}(i), 2(1}(d}(i); 2(J)(i);
2(J}(c), 2(1)(c)(i), 14: 26:
Shares before allotment, held are not ''goods "-:f'rospective investor,
held, not a "Consumer'-Forum under Act, held, has no power to grant interim
or ad-interim relief
Code of Civil Procedure, 1908-0rder 39 Rules, 1,2,3 & 5 Constitution
D of India, A11icle 226-Factors for grant of injunction in public issues laid
down-Need for venue restrictions specified.
Securities and &change Board of India (Mutual Funds) Legislation,
1993-Regulation 27-Disclaimer clause, held, does not amount to non-apE proval-''First. come first served" under the Scheme of allotment, held, does
not deceive investors.
Practice and procedure-Costs-Vexatious litigation Penal Costs of Rs.
25,000 awarded-Constitution of India, Article 142.
F
The Appellant in C.A. No. 4384 of 1994 is a domestic mutual fund
registered with the SEBI along with its investment management agency.
The Memorandum and Articles of Association of the appellant along with
the draft scheme were approved by SEBI after due scrutiny and examination. SEBI also approved in writing all advertisements and publicity
G material. While approving the scheme, SEBI also put in a disclaimer
clause which Is a standard requirement in all issues. The appellant started
advertising the public Issue on 13-12-1993.
One P, filed a suit before the Sub-Judge at Delhi for injunction
restraining the public issue from being floated. An interim order was
H passed by, the Sub-Judge but the High Court on being moved by the
136
MORGAN STANLEY MUTUAL FUND v. K. DAS
137
appellant stayed the same on 4-1-1994. One A, filed a Writ Petition (W.P. A
No. 14 of 1994) before the Delhi High Court against the SEBI, seeking inter
a/ia a stay of the public issue, which was dismissed in limine. Civil Appeal
4587 of 1994 at the instance of the unsuccessful writ petitioner arises from
this proceeding. Seeking the same relief as were sought in the writ petition,
one K, moved the Calcutta District Consumer Disputes Redressal Forum B
allei:ing inter alia that the Fund's Offering areolar was not approved by
SEBI and that the basis of allotment was arbitrary and unfair. The Forum
passed an exparte interim order dated 4-1-1994 restraining the Fund from
proceeding with the fuctber issue against which the Fund appealed before
the Supreme Court by Special Leave (Civil Appeal No. 4587 of 1994).
The appellants contended that shares that are to be allotted In future
are not goods under s.2(1)(i) of the Consumer Protection Act, 1986 and
that even assuming that shares are goods, prospective shareholders are
c
not consumers and are therefore not entitled to file a complaint. The
respondents on the other band submitted that when SEBI regulations
(R.27) are violated, a prospective applicant would be entitled to seek an D
injunction.
Allowing C.A.No. 4587 of 1994 and dismissing C.A. No. 4548 of 1994,
this Court
Held : 1. As per the 4efinltlon under Section 2(l)(d)(i) of the
Consumer Protection Act, 1986, 'Consumer' is the one who purchases
goods for private use or consumption. In order to satisfy the requirement
E
of the definition, there must be a transaction of buying goods for consideration. The definition contemplates the pre existence of a completed
transaction of a sale and purchase of goods. In view of Section 2(1)(i) of F
the Consumer Protection Act, the meaning of 'goods' is the same as
defined In Section 2(7) of the Sale of Goods Act, 1930. All actionable claims
and money are thus excluded from the definition. Till the allotment of
shares takes place 'the shares do not exist.' Therefore, till then they can
never be called goods. At the stage of application, an applicant is onl:' a G
prospective investor in future goods. If regard be had to the definition of
"complaint' under the Act, it will be clear that no prospective Investor
could fall under the Act. [153-E, 155E, 153-G, 155-E]
2. The expression "unfair trade practice' as per Section 2(1)(r) has

## Text

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A
B
c
MORGAN STANLEY MUTUAL FUND
v.
KARTICKDAS
MAY 20, 1994
[M.N. VENKATACHALIAH, CJ., S. MOHAN AND
DR. A.S. ANAND, JJ.]
Consumer Protection Act 1986, Secs. 2(1}(i), 2(1}(d}(i); 2(J)(i);
2(J}(c), 2(1)(c)(i), 14: 26:
Shares before allotment, held are not ''goods "-:f'rospective investor,
held, not a "Consumer'-Forum under Act, held, has no power to grant interim
or ad-interim relief
Code of Civil Procedure, 1908-0rder 39 Rules, 1,2,3 & 5 Constitution
D of India, A11icle 226-Factors for grant of injunction in public issues laid
down-Need for venue restrictions specified.
Securities and &change Board of India (Mutual Funds) Legislation,
1993-Regulation 27-Disclaimer clause, held, does not amount to non-apE proval-''First. come first served" under the Scheme of allotment, held, does
not deceive investors.
Practice and procedure-Costs-Vexatious litigation Penal Costs of Rs.
25,000 awarded-Constitution of India, Article 142.
F
The Appellant in C.A. No. 4384 of 1994 is a domestic mutual fund
registered with the SEBI along with its investment management agency.
The Memorandum and Articles of Association of the appellant along with
the draft scheme were approved by SEBI after due scrutiny and examination. SEBI also approved in writing all advertisements and publicity
G material. While approving the scheme, SEBI also put in a disclaimer
clause which Is a standard requirement in all issues. The appellant started
advertising the public Issue on 13-12-1993.
One P, filed a suit before the Sub-Judge at Delhi for injunction
restraining the public issue from being floated. An interim order was
H passed by, the Sub-Judge but the High Court on being moved by the
136
MORGAN STANLEY MUTUAL FUND v. K. DAS
137
appellant stayed the same on 4-1-1994. One A, filed a Writ Petition (W.P. A
No. 14 of 1994) before the Delhi High Court against the SEBI, seeking inter
a/ia a stay of the public issue, which was dismissed in limine. Civil Appeal
4587 of 1994 at the instance of the unsuccessful writ petitioner arises from
this proceeding. Seeking the same relief as were sought in the writ petition,
one K, moved the Calcutta District Consumer Disputes Redressal Forum B
allei:ing inter alia that the Fund's Offering areolar was not approved by
SEBI and that the basis of allotment was arbitrary and unfair. The Forum
passed an exparte interim order dated 4-1-1994 restraining the Fund from
proceeding with the fuctber issue against which the Fund appealed before
the Supreme Court by Special Leave (Civil Appeal No. 4587 of 1994).
The appellants contended that shares that are to be allotted In future
are not goods under s.2(1)(i) of the Consumer Protection Act, 1986 and
that even assuming that shares are goods, prospective shareholders are
c
not consumers and are therefore not entitled to file a complaint. The
respondents on the other band submitted that when SEBI regulations
(R.27) are violated, a prospective applicant would be entitled to seek an D
injunction.
Allowing C.A.No. 4587 of 1994 and dismissing C.A. No. 4548 of 1994,
this Court
Held : 1. As per the 4efinltlon under Section 2(l)(d)(i) of the
Consumer Protection Act, 1986, 'Consumer' is the one who purchases
goods for private use or consumption. In order to satisfy the requirement
E
of the definition, there must be a transaction of buying goods for consideration. The definition contemplates the pre existence of a completed
transaction of a sale and purchase of goods. In view of Section 2(1)(i) of F
the Consumer Protection Act, the meaning of 'goods' is the same as
defined In Section 2(7) of the Sale of Goods Act, 1930. All actionable claims
and money are thus excluded from the definition. Till the allotment of
shares takes place 'the shares do not exist.' Therefore, till then they can
never be called goods. At the stage of application, an applicant is onl:' a G
prospective investor in future goods. If regard be had to the definition of
"complaint' under the Act, it will be clear that no prospective Investor
could fall under the Act. [153-E, 155E, 153-G, 155-E]
2. The expression "unfair trade practice' as per Section 2(1)(r) has
the same meaning as defined under Section 36-A of Monopolies and H
•
138
SUPREME COURT REPORTS [1994] SUPP. 1 S.C.R.
A
Restrictive Trade Practices Act, 1969. That again cannot apply because the
company is not trading in shares. "Share' means a share in the Capital.
The object of issuing the same is for building up capital. To raise capital
means making arrangements for carrying on the trade. It is not a practice
relating to the carrying of any trade. Creaiion of share capital without
B allotment of shares does not bring shares into existence. In view of the
above position the question of the appellant company trading in shares
does not arise. Therefore, a prospective investor is not a nconsumern under
the Act. It follows that the Consumer Disputes Redressal Forum has no
jurisdiction whatsoever. (156-C, D, E, Fl
C
3. As principle, ex pane injunction could be granted only under
D
exceptional circumstances. The factors which should weigh with the court
In the grant of ex pane injunction are - (156-Hl
(a)
Whether irreparable or serious mischief will ensue to the
plaintiff;
(b)
whether the refusal of ex parte injunction would involve
greater injustice than the grant of it would involve;
(c)
the court will also consider the time at which the plaintiff first
bad notice of the act complained so that the making of imE
proper order against a party in his absence is prevented;
( d)
The court will consider whether the plaintiff had acquiesced
for sometime. In such circumstances it will not grant ex parte
injunction;
F
(e)
the court would expect a party applying for ex parte injunction
to show utmost good faith iu making the application;
(f)
eveu if granted, the ex parte injunction would be for a limited
period of time;
G
(g)
general principles like prima facie case, balance of convenience
and irreparable loss would also be considered by the court.
(157-A to El
In this case, the public advertisement was given on 13- 12-1993, the
petition was filed on 4·1-1994 and the impugned order of Consumer Forum
H came to be passed on the following day. As to why the respondent chose to
MORGAN ST AN LEY MUTUAL FUND v. K. DAS
139
come at the eleventh hour and where was the need to pass an urgent order A
of injunction are matters which are not discernible. Besides, tested in the
light of the decreed cases the impugned order which is bereft of reason
and laconic cannot stand a moment's scrutiny. [159-G]
4. Today the Corporate sector is expanding. To prevent disgruntled
litigants from indulging in adventurism, it has become necessary to evolve
certain venue restrictions. In India, the residence of the Company is where
the registered office of the Company is located. Normally cases should be
tiled only where the registered office of the company is situate. Courts
outside the place where the registered office is located, if approached, must
have regard to the fact that invariably suits are filed seeking to injunct
either the allotment of shares or the meetings of the Board of Directors or
again the meeting of the general body. The Court is approached at the last
minute. If injunction is granted even without notice to the respondent it
B
c
will cause immense hardship and administrative inconvenience. It may be
some times difficult even to undo the damage by snch an interim order. D
Therefore, the Court must ensure that the plaintiff comes to court well in
· time so that notice may be served on the defendant and he may have his
say before any interim order is passed. [160-A, 160-G, H; 161-A]
5. There is no power under the Act to grant any interim relief or even
an ad interim relief. Only a final relief could be granted. If jurisdiction of E
the Forum to grant relief is confined to the four clauses mentioned under
section 14, no interim injunction could never be granted disregarding even
the balance of convenience. [162-A)
6. The argument that SEBI should have acted in accordance with F
Section 11(2) (e) of the SEBI Act 1992 to prohibit "Fraudulent and unfair
trade practices" related to the securities market is without substance. The
disclaimer clause required to be incorporated at the beginning of the
offering circular by SEBI while approving the scheme is a standard
requirement and nothing peculiar to the present case. The object of this G
is to bring to the notice of the investors that they should take the firm
decision on the basis of the disclosures made in the documents. It Is meant
for the investor's protection. In fact by such a cour.se the SEBI informs
the investors that they have approved the scheme but they did not recom·
mend to the investors whether such investment is good or not and leave it
to their discretion. Therefore, the allegation that the SEBI has not ap· H
140
SUPREME COURT REPORTS [1994] SUPP. 1 S.C.R.
A
proved the other documents is totally baseless. (146-B, 150-F, G]
7. The challenge to the method or allotment is without force. The "first
come first served" scheme was an invitation to the subscribers lo apply
early so that the scheme be closed quickly. The appellants had made It very
clear that those who applied during the opening period or the scheme would
B
be given full allotment. [152-E, FJ
8. There Is an increasing tendency on the part or some litigants to
Indulge In speculative and vexatious litigation and adventurism which the
· fora seem readily to oblige. Such a tendency should be curbed. Having
regard to the frivolous nature or the complaint, It Is a fit case for award or
C costs, more so, when the appellant has suffered heavily. Therefore, costs or
Rs. 25,000 are awarded In favour or the appellant. (162-EJ
Maneckji Pestonji Bharucha v. Wadi/a/ Sarabhai & Co., AIR (1926) PC
38-53 IA 92 = 28 Born L R 777; Madho/a/ Sindu of Bombay v. Official
D Assignee of Bombay, AIR (1950) FC 21 = 1959 FCR 441 and State of West
Bengal v.Swapan Kumar Guha and Sanchita Investments, (1982] 1SCC561,
referred to.
E
F
G
CIT v. Standard Vacuum Oil Co., AIR (1966) SC 1393 and United
Commercial Bank v. Bank of India, (1981] 2 SCC 766, relied on.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4584 of
1994.
From the Judgment and Order dated 4.1.94 of the Calcutta District
Consumer Disputes Redressal Forum in C.D.F. Case No. 35 of 1994.
WITH
Civil Appeal No. 4587 of 1994.
From the Judgment and Order dated 5.1.94 of the Delhi High Court
in W.P. No. 14 of 1994.
Ashok H. Desai, Aron Jaitley, R.Karanjawala, Ms. Dina Wadia, Ms.
Nandini Gore and Mrs. M. Karanjawala for the Appellants.
In-person in Pertr. No. 321/94.
H
K.V. Vishwanathan and L.P. Agrawala for the Respondents.
MORGAN STANLEY MUTIJALFUND v. K. DAS [MOHAN,J.]
141
The Judgment of the Court was delivered by
A
MOHAN, J. Leave granted.
2. The appellant is a domestic mutual fund registered with Securities
and Exchange Board of India (hereinafter referred to as 'SEBI') under
Registration No. MF/005/93/1, dated 5.11.93. The appellant is managed by B
a Board of Trustees. Pursuant to the SEBI (Mutual Fund) Regulations, the
investment management company of the appellant, Morgan Stanley Asset
Management India Private Limited was registered with SEBI on 5.11.93.
Under such registration Morgan Stanley Asset Management India Private
Limited is constituted as the asset management company of the appellant. C
Morgan Stanley Asset Management India Private Limited is a subsidiary
of Morgan Stanley Group Inc. which holds 75% of equity, the balance
being held by Indian shareholders such as Housing Development Finance
Corporation (HDFC), Stock Holding Corporation of India etc. Morgan
Stanley Asset Management India Private Limited was granted certificate
of incorporation on 18th October, 1993 by the Registrar of Companies, D
Bombay. Its Memorandum and Article of Association have also been
approved by the SEBI as per the provisions of the said Regulations.
·
3. The draft scheme of the appellant was approved by the Board of
Trustees by Circular Resolution dated 8.11.93. This was forwarded to SEBI E
. for its approval on 10.11.93. The scheme was duly scrutinised and examined
by the SEBI and SEBI gave its approval and certain amendments were
suggested.
Upon receipt of such approval for the scheme, the appellant and the
Investment Manager took necessary steps to begin marketing the scheme ·F
by issue of advertisements. All advertisements and publicity material were
approved by SEBI in writing before publication as required by the Regula
tions. Pursuant to such approval the appellant commenced advertising the
public issue.
4. On 18th December, 1993 the advertisements and hoardings were G
released. One Piyush Aggarwal filed a suit before the learned Sub-Judge,
Tees Hazari Courts, Delhi for injuction restraining the public issue from
being floated by the appellant. On 24th December, 1993 an interim order
was passed. Aggrieved by the same, the appellant moved the High Court
m C.M. (M) No. 543 of 1993. On 3rd January, 1994 the said order passed . H
142
SUPREMECOURTREPORTS (1994] SUPP. lS.C.R.
A . by the learned Sub Judge - was stayed. That was subsequently confirmed
on 4th January, 1994. One Dr. Arvind Gupta filed W!it Petition No. 14 of
1994 against SEBI. In effect, he sought to stay the public issue from being
floated. That writ petition was rejected.
5. On the same grounds, as were urged in the writ petition, the
B
respondent moved the Calcutta District Consumer Disputes Redressal
Forum seeking to restrain the public issue from being floated. The prin
cipal grounds taken were that the appellant's Offering Circular was not
approved by the SEBI. There are several irregularities in the same. The
basis of allotment is arbitrary, unfair and unjust. The appellant was seeking.
C
to collect money by misleading the public.
The following order was passed on 4.1.1994 by the Calcutta District
Consumer Disputes Redressal Forum :
"Petitioner files the complaint today. Register. Issue notice of
D
show cause against OPs.
E
H
G
Considering the utmost urgency of the case as cited by the Ld. '
Lawyer for the petitioner we are inclined to pass an interim order
otherwise the application would be frustrated.
Accordingly we direct OP 1 and OP 2 and its men, agent,
•1i11" coitectihg Banks not to proceed any further with the issue of 30
., .. m •l't:rores Morgan Stanley Growth Fund units due to be opened on
6th January, 1994 till proper clarification is made in its prospectus
and with the leave of this Ld. Forum. OP 3 i.e. SEBI is also directed
· '0' bn" riot to issue clearanDs until Regulation 28 of Schedule V of SEBI
ámârf'.Ja ·d•
.;,
"
.. Regulations is complied by the OP 1 and OP 2.
1 /,
I
OP4 & OPS i.e. The Bankers to the offer are specifically
restrained from accepting any application form of Morgan Stanley
Growth Fund from anybody until further orders from this Ld.
Forum.
'_.di" OPs are at liberty to apply for vacation/variation of this order.
'"·Next'date fixed on 19.1.94.'
Aggrieved by this order, civil appeal arising out of SLP(C) No. 272
H
of 1994 has come to be preferred.
MORGAN STANLEY MUTUAL FUND v. K. DAS [MOHAN, J.]
143
Against the dismissal of Writ Petition No. 14 of 1994 by the High A
Court of Delhi civil appeal arising out of SLP No. 321 of 1994 has come
to be preferred.
6. Mr. Ashok Desai learned counsel for the appellant (Morgan
Stanley Mutual fund) urges the follol\'ing :
(a) A prospective investor is not a consumer to prefer a complaint
under the Consumer Protection Act, 1986 (hereinafter referred to as 'the
Act'). If that be so, a voluntary consumer association cannot complain
about the issue of shares. The shares are not goods as defined under
Section 2(i) of the Act. Even otherwise, there can be no consumer association of prospective applicants for future properties. The issue of shares was
to open on 27th April, 1993. The so called consumer has yet to apply for
allotment of final shares and make payments in respect thereof. Therefore,
it is submitted that no member of this association could be held to be a
consumer of future shares within the meaning of the definition (supra).
(b) In law, a prospective investor does not become a consumer as
denined under the Act. Even assuming that shares could be goods before
allotment, the so-called consumer has neither purchased the goods for a
consideration nor hired the services of the company for consideration.
Hence, he is not entitled to make any complaint.
( c) There being no transaction of buying goods for consideration the
requirement of section 2(1)(d)(i) of the Act defining consumer is not
satisfied.
B
c
D
E
( d) No member of the public has a right or entitlement to a share of F
the company making an issue of capital for the first time. A prospective
investor has no say in the val~ation of shares issued. That is determined by
the general body of share holders. Should a prospective investor have any .
legal right and if the issue of capital is not to his desire, he may not opt to
subscribe. He cannot intentionally with the objection of which he is per- G
sonally aware, subscribe into the issue and challenge its very terms.
(c) Under the scheme of the Consumer Protection Act, a consumer
forum is competent to deal with the complaint if it relates to goods bought
or services rendered. Thus the District Consumer Forum has no jurisdic-
· tion whatsoever to deal with this case.
H
A
B
c
144
SUPREME COURT REPORTS [1994) SUPP.1 S.C.R.
(!) Section 2( c) of the Act defines a complaint and lists four cases
where investigation, inquiry and relief could be granted. The complaint in
relation to public issue of shares namely future goods does not fall within
any one of four categories of which a complaint can be filed under the
provisions of the Act.
(g) Section 14 of the Act deals with the nature of relief that can be
granted. This Section does not envisage grant of any interim relief of an
ad-interimielief. The Section contemplates only a final relief. In the instant
•
case, the grant of injunction against the public issue of the appellant
company is a relief not provided for under the statute.
(h) The principles relating to grant of injunction including the
balance of convenience have not been borne in mind. Even assuming that
the Forum is conferred with the power to grant injunction it has not
examined whether there were overwhelming reasons for urgency and why
the grievance could not have been made earlier. In this case, the party had
D
gone to the Forum on the last date when the issue was about to open after
the issue had been advertised. The public advertisement was issued on
13.12.93; the petition was filed on 4.1.1994, the orders were passed on the
following day. The Calcutta District Consumer Disputes .Redressal Forum
was approached on the last day, obviously with unclean motives. There is
E
also suppression of material facts on the part of the respondent. In matters
of this kind there must be an undertaking as to the damages on the part
of the party seeking the injunction.
For these reasons, it is prayed that the impugned order may be
set-aside. In this case, since the appellant has suffered very much in that
F
not even the copy of the injunction was served on the appellant which copy
came to be obtained only through the bankers, it is a fit case in which the
appellant should be Compensated with exemplary costs.
7. Mr. KG. Vishwanathan, learned counsel for the respondent urges
that there are well-known principles for the grant of ex-parte injunction.
G
Should the court he satisfied that there is a prima facie case, on balance of
convenience, it can always grant. Where the issue of public share is nothing
but an attempt to gain an undue advantage, the Court is not powerless.
This is- a case to which the Regulations would apply. Therefore, if those
Regulations are not conformed to, a prospective applicant would be en·
H tit\ed on to seek an injunction. There has been a violation of Regulation
MORGAN STANLEY MUTUAL FUND v. KDAS [MGHAN,J.]
145
27 and that the appellant did not have any approval as is clear from their A
own document Only a letter from SEBI seeking the clarification from the
appellant is produced. This does not, it is urged, amount to an approval in
law.
It is further urged by Mr. Vishwanathan that the bankers to the issue
at Calcutta were really non-existent. The brochure indicates that the application forms could be received in Calcutta at the Bank of Broda, Old
Court House Street and Corporation Bank. Cappling Street. Both these
branches, it is urged, are non-existent while there is no branch of Bank of
Baroda at Old Court House Street. There is no street called Cappling
Street at Calcutta.
The basis of allotment what is styled 'first come, first served' was, it
B
c
is urged, intended to confuse and designed to deceive the innocent investors. The applications were received in 45 centres simultaneously. No
priority number was given. Hence, the appellant would be in a position to
deny to each one of the investors on the ground that he had not come or D
approached the appellant first. As a result, the appellant will be able to
amass enormous sums of money by way of interest and thereafter return
the amount to the respective investors.
The failure to stipulate the period before which the refund would be E
effective is, it is further urg~d, a serious irregularity violating Regulation
23.
The Calcutta District Forum has, it is claimed power to issued the
restraint order under the Act.· Such injunctions are not unknown to law as
seen from the Financial Services Act, 1986 of the United Kingdom. ThereF
fore, no interference is calfed for.
In S.L.P. (c) 321/94, the appellant would urge that the High Court
has dismissed the writ petition without a speaking order. There were
important points raised in the writ petition. The announcement of the
impugned scheme of public issue of units by the appellant is, it is conG
tended, without the approval of SEBI and is illegal and that by proposing
the allotment of units based on first come first served basis, fair treatment
is not meted out to small investors. There is contravention of Sections 55,
63 and 68 of the Indian Companies Act, 1956. To hold out, as the appellant
has done, that the allotment of units will be based on firm allotment basis H
146
SUPREME COURT REPOR'fS [1994] SUPP. 1 S.C.R.
A and with a charged sponsor in the advertisement is, it is contended, illegal
in law, apart from it being violative of the norms and practices in the capital
market. In such a case, the impending disaster could be avoided only by a
quia-timet interference of the Court. It is also urged that by piercing the
corporate veil, it could be easily seen that the real sponsor is no other than
B the Morgan Stanley Group, New York. Therefore, SEBI Should have acted
in accordance with Section 11(2)( e) of the SEBI Act, 1992 for prohibiting
fraudulent and unfair trade practices relating to securities market. It is also
urged that the writ petition came to be filed and dismissed without consideration of these aspects. So, it requires interference of this Court.
C
8. We have already extracted the impugned order. The correctness
of the same can be determined with reference to the following questions :
(i) Whether the prospective investor could be a consumer within
the meaning of Consumer Protection Act, 1986?
D
(ii) Whether the appellant company 'trades' in shar~s?
E
F
G
(iii) Does the Consumer Protection Forum have jurisdiction in ·
matters of this kind?
(iv) What are the guiding principles in relation. to the grant of an
ad-interim injunctions in such areas of the functioning of the
capital-market and public issues of the corporate sectors and
whether certain 'venue restriction clauses' would require to be
. evolved judicially as has been done in cases such as State of West
Bengal & Ors. v. Swapan Kumar Guha and others and Sanchaita
Investments and others, [1982] 1 SCC 561 etc.?
(v) What is the scope of Section 14 of the Act?
The answers to these questions will d.ecide not only the fate of this
civil appeal but also the appeal arising out of SLP (C) No .. 321/94.
9. In order to decide these questions, it will be necessary to set out
the factual matrix. On 11.4.1988, Government of India by a.'l administrative
circular constituted the Securities and Exchange Board of India (SEBI) for
investors protection. On 30.1.1992, an Ordinance known as SEBI' Ordinance was promulgated. On 21.2.1992, a bill was introduced namely the
H SEBI Bill of 1992 which became the Act on 4th April, 1992. It came into
/
MORGAN STANLEY MUTUAL FUND v. K. DAS [MOHAN. J.]
147
force on 13.1.1992 as stated in Section l(iii) of the SEBI Act.
A
On 29.5."1992, the Capital Issues Control Act, 1947 was repealed.
10. Mutual funds in India are regulated by SEBI pursuant to the
Securities & Exchange Board of India (Mutual Funds) Regulations, 1993.
Under the said Regulations, all mutual funds in India as also the asset B
management companies and the custodians of the mutual funds assets are
required to be registered with the SEBI. No mutual fund in India can
approach the market with a scheme unless scheme has been fully approved
by SEBI which is the sole authority for granting approval to such funds.
The SEBI examines the scheme and suggests modifications, if any, and C
allows the scheme to be advertised and published.
11. The appellant is a domestic mutual fund registered with SEBI.
Its registration number is MF/005/93/1 dated 5.11.1993. The certificate of
registration is as under :
'SECURITIES AND EXCHANGE BOARD OF INDIA
(MUTUAL FUND) REGULATIONS, 1993
(Regulation 9)
CERTIFICATE OF REGISTRATION
D
1. In exercise of the powers conferred by Section 30 of the
E
Securities and Exchange Board of India Act, 1992 ( 15 of 1992)
read with Securities and Exchange Board of India (Mutual Fund)
Regulations, 1993 made thereunder the Board hereby grants a
certificate of registration to
MORGAN STANLEY MUTUAL FUND
as a Mutual Fund.
ii) Registration code for the Mutual Fund is MF/005/93/1
By order.
11
The appellant company is managed by a board of Trustees. In
accordance with the said Regulations, the investment management company of the appellant Morgan Stanley Asset Management India Pvt. Ltd.
is also registered with SEBI. The certificate to this effect is as under :
F
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SUPREME COURT REPORTS [1994] SUPP. I S.C.R.
A
SECURITIES AND
EXCHANGE BOARD OF INDIA
Little & Co.
Central Bank Building
B
Bombay 400 023
c
Dear Sir,
II MARP /22996/93
November 5, 1993.
RE: Morgan Stanley Mutual Fund
This has reference to the application made by Morgan & Stanley
Grup, Inc., to sponsor a Mutual Fund.
D
In terms of Regulation 20 of the Securities and Exchange Board
of India (Mutual Funds) Regulations 1993, we hereby grant our
approval to "Morgan Stanley Asset Management India Pvt. Ltd.",
to act as the Asset Management Company for Morgan Stanley
Mutual Fund.
E
We also grant registration to "Morgan Stanley Mutual Fund" in
,,
terms of Regulation 9 of the Regulations subject to the execution
, of the Custodian Agreement between the Board of Trustees and
Stock Holding Corporation of .India Ltd. The certificate of
Registration in form B is enclosed. Please quote the Registration
F
number in your future correspondence with us.
G
Your faithfully.,
Sd/-
J B Ram."
Morgan Stanley Asset Management India Pvt. Ltd. is a subsidiary
Morgan Stanley Group incorporated which holds 75% of the equity, the
balance being held by Indian shares holders such as HDFC, Stock Holding
Corporation of India etc. Morgan Stanley Asset Management India Pvt.
Ltd. was granted the certificate of incorporation on 12.10.1993 by the
H Registrar of Companies, Bombay and its Memorandum and Article of
MORGAN STANLEY MUTUAL FUND v. K. DAS [MOHAN,J.]
149
Association has also been approved by the SEBI as per the provisions of A
the said Regulations.
Regulation 27 of the said Regulations provides that no mutl!al fund
shall announce the scheme unless such scheme has been approved by the
Trustees of the Mutual Fund and by SEBI. On 8.11.1993, the Board of
Trustees, by a circular Resolution approved the draft scheme, the same
was forwarded to SEBI on 10.11.1993. The scheme was duly scrutinised
B
and examined by the SEBI. By its letter dated 23.11.1993, addressed to
Eliarn Financial Consultants Pvt. Ltd., one of the join Lead Managers,
SEBI gave its approval. It is stated that the scheme has been examined by
them in terms of the provisions of the Regulations. It suggested certain C
amendments as detailed in enclosures thereto. SEBI also advised the said
Enam Financial Consultants Pvt. Ltd. to submit three copies of the printed
offering circular and the abridged offering circular of the scheme and the
new schemes return in the prescribed format This requirement of SEBI
was complied with. It is after this the appellant took the necessary steps D
and began marketing the scheme by issuing advertisements in the press,
holding presentations with brokers etc. All advertisements and publicity
material have been approved by SEBI as under :
"Securities and Exchange
Board of India.
Enarn Financial Consultants Pvt. Ltd.
24 BD Rajabahadur Compound,
Ambalal Doshi Marg,
Bombay- 400 001
Dear Sir,
II MARP /24655/93
November 25, 1993.
Re :
Advertisement campaign of Morgan Stanley
Group Inc.
E
F
G
With reference to your letter dated 22nd November, 1993, we
advise that the enclosed revised set of advertisement of the
proposed advertising campaign of Morgan St_anley Inc., are in H
150
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SUPREME COURT REPORTS (1994] SUPP. 1 S.C.R.
order.
Yours faithfully,
K. Ravikanth''.
'December 20th, 1993.
Mr. Ronan Basu
Fortune Communication Ltd.
Bombay.
Sub : MORGAN STANLEY GROWTH FUND
Dear Sir,
I enclose a copy of letter received from SEBI in regard to the
changes suggested 'in the 'Scheme Campaign'. Please carry out the
D
changes as required by SEBI and get the approval of Morgan
Stanley Assest Management before its release.
E
Thanking you,
'
Your faithfully,
for Enam Financial Consultant Pvt. Ltd.
N.G.N. ~anik'.
It has to be carefully noted that the disclaimer clause required to be
incorporated at the beginning of offering circular by SEBI while approving
F
the scheme is a standard requirement and nothing peculiar to the present
case. The object of this is to bring to the notice of the investors that they
should take the firm decision on the basis of the disclosures made in the
documents. It is meant for the investors protection in fact by such a course
the SEBI informs the investors that they have approved the scheme but
G they did not recommend to the investors whether such investment is good
or not and leave it to their discretion. In view of this, it will be clear that
the allegations of respondents that the SEBI has not approved the other
documents is totally baseless.
12. There is also a challenge to the method of allotment. The relevant
H clause pertaining to the method of allotment is as under :
MORGAN STANLEY MUTUAL FUND v. K. DAS [MOHAN, J.]
151
"The offer : The targeted amount to be issued is Rs. 300 crores. A
Units are to be issued at a price of Rs. 10 per unit, payable in fuJJ
upon application. The offer will be open for subscription commencing 6th January, 1994 and will remain open until one day
after notice of the date of closure is given through advertisement
in major national daily newspapers, with the latest date of closure B
being twelve working days after the opening date. If subscriptions
for at least 18 crores units have not been received by the closure
date, the offering will be terminated and all subscriptions will be
returned within 78 days from the closure date. In the event that
the issue is over subscribed, allotments will be made on a "first
come first served" basis. However, MSMF reserves the right to C
accept or reject any subscriptions, including subscriptions in excess
of the targeted amount. See "Terms of the issue." Date of closure:
The issue will be kept open for a minimum of three working days
and a maximum of twelve working days. The Board will proceed
to close the issue by giving one day's notice of the date of closure D
through advertisements in the major national daily newspapers
when approximately 75% of the targeted amount is collected. Only
those subscriptions which are received before the expiry of the
notice period will be retained. If subscriptions for at least 18 crore
units have not been received by the closure date of the issue, the
offering will terminate and the board will return the entire amount E
received within 78 days from such closure date. "Basis of Allotment
& Despatch of Unit Certificate" The arrangements for closure of
the issue and allotment have been designed with the objective of
making allotments on a "first come first served" basis. It is hoped,
however, that all applicants will received their full allotment. AcF
cordingly, MSMF reserves the right to accept or reject any subscription, including accepting subscription in excess of the targeted
amount. Allotment of MSMF Units and despatch of certificate will
be made within ten weeks after the closure of the date of the issue.
The above clauses indicate the following :
(i)
the Petitioners clearly have a desire to retain over subscription and the offering circular (and the SEBI Guidelines)
G
empower them to ilo so.
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152
(ii)
(iii)
''
(iv)
\,
(v)
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SUPREME COURT REPORTS (1994] SUPP. 1 S.C.R.
that there is a minimum period for which the issue will be
kept open namely 3 days;
that those who apply for the units before the closure of the
issue would have the same priority and would be allotted units
to the extent ,applied for;
that there is a provision for a closure notice, which provision
has been discussed with and examined by SEBI. This particular method of closure of the scheme and allotment was
chosen to break away from the system followed by other
mutual funds.
By encouraging prospective investors to apply early the
scheme can be closed quickly, allotments can be finalised
earlier (thereby blocking the money of the first applicants for
a shorter period of time) and most important of all the
proceeds can be invested quickly to benefit from the market
opportunities. This reduces the cost of collection that the
investor has to bear. In this manner by adopting the "First
come first served basis "the scheme becomes more investor
friendly.
13.' The respondent entertained a misconception - whether honestly
or confused the concept of the "First come first served" scheme. As stated,
it is an invitation to the subscribers to apply early and the scheme be closed
quickly. The appellants have made it very clear that those who applied
during the opening period of scheme would be given full allotment. This
was clarified by the appellant at a press conference held at Calcutta 16th
December, 1993. Regular clarifications were issued in this regard by the
appellant. The scheme came to be advertised by the appellant on 13th
December, 1993. The respondents chose to make an application to the
Consumer Forum on the eve of opening of the Scheme. It was on that
G application, the impugned order came to be passed. In this factual background, we will take up the questions set out for determination.
14. Q. 1. Whether a prospective investor could be a consumer within
the meaning of Consumer Protection Act, 1986?
I
H
The definition of consumer is contained under Section 2( d) of the
MORGANSTANLEYMUTUALFUND v.K.DAS(MOHAN,J.]
153
Act which read as under :
A
"2( d)(i) buys any goods for a consideration which has been paidor promised or partly paid and partly promised, or under any
system of deferred payment and includes any user of such goods
other than the person who buys such goods for consideration paid B
or promised or partly paid or partly promised, or under any
system of deferred payment when such use is made with the·
approval of such person, but does not include a person who obtains
such goods for resa.le or for any commercial purpose ; or
•
.
' t
.
.
·.
(ii) hires any services for a consideration which has been paid C
1 or promised or partly paid and partly promised, or under any
system of deferred payment and includes any benefidary of such
services other than the person who hires the services for considera
tion paid or promised, or partly paid and partly promised, or under
any system of deferred payment when such services are availed of D
with the approval of the first mentioned person;".
The meaning of goods is same as defined under Sale of Goods Act,
1930. It is so stated in Section 2(i) of the said Act.
The consumer as the term implies is one who consumes. As per the E
definition, consumer is the orie who purchases goods for private use or
consumption. The meaning cifthe word 'consumer' is broadly stated in the
above definition so as 'to include anyone who consumes goods or services
at the end of the chain of production. The comprehensive defini\ion aims
at covering every man who pays money as the price or cost of goods and
p
services. The consumer deserves to get what he pays for in real quantity
and true quality. In every society, consumer remains the centre of gravity
of all business and industrial activity. He needs protection from the
manufacture, producer, supplier, wholeseller and retailer.
In the light°of this, w.e will have to examine whether the "shares" for G
which an application is made for ·allotment would be "goods". Till the
' allotment of shares takes place, "the shares do 'not exist". The.refore, they
can never be called goods. Under the Sale of Goods Act, all actionable
claims and money are excluded from the definition of goods since Section
2(7) of the Sale of Goods Act, 1930 is as under :
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SUPREME COURT REPORTS [1994) SUPP. 1 S.C.R.
'"goods' means every kind of movable property other than
actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land
which are agreed to be served before sale or under the contract
of sale".
It will be useful to refer to clause (6) of Section 2 of the Sale of
Goods Act, 1930. That reads :
"'further goods' means goods to be manufactured or produced
or acquired by the seller after the making of the contract of sale."
As to the scope of this clause, reference. may be made to Maneckji
Pestonji Bhamcha & Ors. v. Wadi Lal Sarabhai & Com., AIR (1926) PC 38
at page 40. It was observed thus :
"The Company is entitled to deal with the share-holder who is
on the register, and only a person who is on the register is in the
full sense of the word owner of the share. But the title to get on
the register consists in the possession of a certificate together with
a transfer signed by. the registered holder. This is what ilharucha
had. He had the certificates and blank transfers, signed by the
registered holders. It would be an upset of all Stock Exchange
.transactions if it were suggested that a broker who sold shares by
general description did not implement his bargain by supplying the
buyer with the certificate and blank transfers, signed by the
registered holders of the shares described. Bharucha solcl what he
had got. He could sell no more. He sold what in England would
have been choses in action and he delivered choses in action. But
in India, by the terms 'of the Contract Act, these choses in action
are goods. By the definition of goods as every kind of moveable
property it is clear that, not only registered shares, but also this
class of choses in action, are goods. Hence equitable considerations not applicable to goods do not apply to shares in India."
Again in Madho Lal Sindhu of Bombay v. Official Assignee of Bombay & Ors, AIR (1950) FC 21 at page 26, it was held thus :
"A sale according to the Sale of Goods Act (and in India goods
H
include shares of joint stock companies) takes place when the
MORGAN STANLEY MUTUAL FUND v. K.