PFIZER LTD Vs. HANSSAF SINGH

JUDGEMENT

(1.) Whether the unsuccessful applicants seeking allotment of shares in the public issues floated by incorporated Companies would become consumers within the meaning of the definition under the Act? This is the core question having national ramifications in this appeal.

(2.) The significance of the question merits an indepth and exhaustive examination, though the facts giving rise thereto lie in an admittedly narrow compass. More than a decade ago, limited company of renown advertised its public issue of shares in the newspaper. The respondent in response to the same made an application for the allotment of shares with the requisite deposit of Rs.450/- only. It is common ground that he was not allotted any shares and the grievance sought to be made out in the complaint was that the amount aforesaid had not been actually refunded and received by him till the filing of the complaint late in the year 1992. It was however admitted that a refund order of the said amount dated the 28th of May, 1992 had been sent by the appellants to the respondent who had accepted the same, but still claimed that he was either entitled to interest at 18% p. a. from the date of the deposit or to the allotment of the share certificates.3. In contesting the complaint, the appellants took up the firm and forth-right stand that the respondent did not come within the ambit of a consumer and in any case, no deficiency in service or defect in goods was involved. Equally, the alternative firm stand was that of the bar of limitation after the lapse of more than a decade.4. On merits the plea taken was that the appellants had issued a refund order within the stipulated period in December 1982 under a certificate of posting from the postal authorities. It was further the case that even reminders had been sent to the complainant to either collect the money or return the refund, order for revalidation, if it had expired, and in case the same was not traceable to take necessary steps for securing a duplicate one. However, there was no response from the respondent but without standing on technicalities, toe appellants sent a duplicate refund order on the 28th of May, 1992 and consequently, the complainant was not entitled to any relief on merits either.5. The District Forum without any foundational base assumed that there were huge amounts of refunds which the appellants had converted to its own use and somewhat uncharitably rejected the appellant's plea that the refunds had been sent under postal certificates on the grounds that such posting certificates can be easily arranged. The appellant's plea of the respondent not being a consumer and the dispute being outside the pale of consumer jurisdiction, was rejected somewhat summarily on the curious ground that the definition of a consumer will have to be seen by considering a particular situation. The bar of limitation was then over come on the ground that the second refund order has been sent on the 28th of May, 1992. Relief was granted by declaring an entitlement of refund of the principal amount of Rs.450/- with an interest of Rs.700/- thereon despite the stipulation in the application form that no interest would be payable.6. Mr. Ketan Parikh, the learned Counsel for the appellants took the bull by the horns and forthwith rightly contended that herein the matter was plainly beyond the pale of consumer jurisdiction. The firm submission was that the complainant did not come within the ambit of the definition of a Consumer nor was there any question of defective goods supplied or any deficiency in services hired. It was high lighted that the prospectus of the Company and the floating of a public issue of equity shares and the advertisements were all merely invitations for offers in the eye of law. Until and unless, the said offer was in terms accepted, no contract would come into being nor any legal consequence flow there from. Particularly, the fact that no allotment of shares was made, was highlighted to contend that under the Company Law till such appropriation no property or goods came into existence at all. Lastly the plea was that herein the question of any unfair trade practice did not even remotely arise and found not the least mention in the complaint itself.7. It is manifest that in the context of the present day liberalisation of the Indian economy and the consequent emergence of plethora of public issues by the Indian Companies. The questions aforesaid raise wide-ranging national ramifications. These have necessarily to be examined in depth even at the cost of some prolixity.8. Inevitably, the controversy has to revolve around the definition of a consumer under the Act as it stood unamended at the time of cognizance of the complaint. These may be noticed at the very out-set for facility of reference. " (d) "consumer" means any person who,- (i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user or such goods other than the person who buys such goods for consideration paid or promised or partly paid and 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 resale or for any commercial purpose; or (ii) hires any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires the services for consideration paid or promsed or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person. " 9. Ere one adverts to the aforesaid provision, the threshold question is with regard to the very nature of the floating of a public issue by an incorporated Company and the consequential advertisements invited applications for the allotment of the shares in its capital on the basis of the prospectus. We are inclined to hold that the matter is so evident that it would be wasteful to overly elaborate the issue and labour the obvious. Plainly enough, the floating of a public issue and the advertisements through media in the present days is merely seeks an invitation from the applicant-investors. To use the terms of legal art, they are merely invitations to treat. " However, one has to guard oneself and highlight that such advertisement or media compaigns for mega issues are not offers by the Company to the public, but merely an invitation to the investors to make offers on the basis of the terms and conditions extended out in the prospects or other documents of the company. It is in the discretion of the Board of Directors to accept or refuse a particular application or a class of applications. To repeat in strict legal terms, it is not an offer capable of acceptance by the world at large, but merely an "invitation for offers" contingent upon its acceptance or refusal by the Board of Directors of the Company. Perhaps as a matter of academic interest, the classic exposition of the law may be noticed from the celebrated work of Anson's Law of Contract: "in such cases it may be asked whether the statement made in an offer capable of acceptance or merely an invitation to make offers, and do business; whether the railway company by its published time-table makes offers which become terms in the contract to carry, or whether it states probabilities in order to induce passengers to apply for tickets. Such preliminary statements, if they are not intended to be binding, are known as 'invitations to treat'. We may give some examples of them here: a shopkeeper who places goods in a shop window marked at a certain price, or upon shelves in a self-service shop, does not bind himself to sell at that price, or to sell at that price, or to sell at all. His display is merely an invitation to treat; it is for the customer to offer to buy the goods, and he may accept or refuse the offer as he wishes. An announcement that goods will be sold by tender unaccompanied by words indicating that they will be sold to the highest bidder, is a 'mere attempt to ascertain whether an offer can be obtained within such a margin as the sellers are willing to adopt. A bookseller's catalogue, with prices stated against the names of books, might seem to contain a number of offers, but is in fact merely an invitation to treat; otherwise the bookseller would be obliged to sell to every person who accepted his 'offer to sell a particular book. In such cases, it may be asked whether the statement made is an offer capable of acceptance. " 10. In the light of the aforesaid authoritative exposition it necessarily follows that the floating of a public issue by an incorporated Company and the advertisements and the publicity, therefor is purely an invitation for offers from the prospective investing public.11. Once it is held as above, it would be manifest and indeed is by now settled law that no legal rights flow from a mere invitation for offers. It is trite learning that an enforceable contract arises only on the making of a definite offer or promise on one side and an unconditional acceptance thereof on the other. That being so, a Company floating shares only seeks an invitation for an offer and it is the applicant investor who on the basis of the prospectus makes the offer by virtue of the terms and conditions in the said application. Until and unless that offer is accepted in the concrete form of a formal allotment of shares, no question of any contract arises at all, far from that being an enforceable one. It is virtually an ad-age of the law that no legal rights flow from a mere invitation for offer nor can a person contract with the world at large.12. It is against the aforesaid background that one has now to examine whether an applicant for allotment in a public issue of floated companies share would become a consumer under the Act. The stage is now set to construe the twin aspect of the definition of a consumer quoted in para 8 above. For reasons of clarity one may examine them separately on the dual aspect of a consumer being either a purchaser of goods or hirer of services.13. Now a mere look at Sub-clause (i) of Clause (d) afore-quoted would show that the pre-eminent condition first is of a person buying any goods for consideration. Until and unless there is a concluded or contingent contract of purchase of goods, a person does not enter the portals of consumer jurisdiction under this sub-clause. The very pre-condition, therefore, is of the acceptance of a binding agreement of sale and purchase. It is plain that by virtue of Clause (i) of Sec.2 of the Act goods means goods as defined in the Sale of Goods Act and by reference thereto shares come within the meaning thereof. However, the gut question still remains whether there has been an actual sale or purchase of such shares. Can it be said that by a mere application for allotment of shares, the applicant steps into the shoes of being a consumer. The answer has obviously to be in the negative. This is indeed so on larger principle and equally on the plain language of the statute. However, it seems to be the same also when it is examined in the context of the nature of the allotment and appropriation of shares under the Company law. Since the matter is covered by the binding precedent of the Apex Court, it is unnecessary to examine it on principle. It more than suffices to notice the authoritative observations of the Court in sri Gopal Jalan and Co. V/s. Calcutta Stock Exchange Association Ltd. , 1964 AIR(SC) 250 " (7) So Farwell L. J. Said in Mosely V/s. Koffyfonteh Mines Ltd., 1911 1 Ch 73 at p.84 "as regards the construction of these particular articles it is plain that the words 'creation', 'issue' and 'allotment' are used with the three different meanings familiar to business people as well as to lawyers. There are three steps with regard to new capital; first, it is created; till it is created the capital does not exist at all. When it is created it may remain unissued for years, as indeed it was here; the market did not allow of a favourable opportunity of placing it when it is issued it may be issued on such terms as appear for the moment expedient. Next comes allotment. To take the words of Stirling J. in Spitzel V/s. Chinese Corporation Ltd.,1899 80 LT 347 at p.351, he says: "what it is an allot of shares? Brcadly speaking, it is an appropriation by the directors or the managing body of the company of shares to a particular person. " Lod Greene M. R. observed in In re, V. G. M. Holdings Ltd.1942-1 Ch 235 "it seems to me that the word 'purchase' cannot with propriety be applied to the legal transaction under which a person, by the machinery of application and allotment, becomes a shareholder in the company. He does not purchase anything when he does that. Mr. Wynn Parry endeavoured heroically to establish the proposition that a share before issue was an existing article of property, that it was an existing bundle of rights which a shareholder could properly be said to be purchasing when he acquired it by subscription in the usual way. I am unable to accept that view. A share is a chose in action. A chose in action implies the existence of some person entitled to the rights which are rights in action as distinct from rights in possession, and, until the share is issued, no such person exists. Putting it in a nutshell, he difference between the issue of a share to a subscriber and the purchase of a share from an existing shareholder is the difference between the creation and the transfer of a chose in the action". (8) It is beyond doubt from the authorities to which we have earlier referred, and there are many more which could be cited to show the same position, that in Company law "allotment' means the appropriation out of the previously unappropriated capital of a company, of a certain number of shares to a person. Till such allotment the shares do not exist as such. It is on allotment in this sense that the shares come into existence. Learned Counsel for the appellant has not been able to cite any case where the ord 'allotment' has been used to describe a transaction with regard to an existing share, that is, a share previously brought into existence by appropriation to a person out of the authorised capital. In every case the words 'allotment of shares' have been used to indicate the creation of shares by appropriation out of the unappropriated share capital to a particular person. " 14. It would be evident from the above that till the actual appropriation or allotment of shares, the very entity thereof does not come into being and obviously no question of their sale or purchase can arise. The mere application for shares without its acceptance and actual allotment and appropriation of the quantified shares does not even remotely amount to their purchase in the eye of law. It is, therefore, manifest that a mere application for the shares of public issue cannot come within the scope of Sub clause (i) to be a purchaser of shares for consideration. What is, however, more is the fact that in order to give rise to a consumer lis, in this connection, such goods must suffer from one or more defects. Whereas in the present context, no shares have even been allotted nor has there been an actual purchase thereof. It is obvious that a question of any defect therein can even remotely arise. From whichever angle it may be viewed, it is evident that a prospective Investor by an application is neither a purchase of share as such nor can be complain of a defect in goods to raise a cause of action in the statute.15. One may now advert to the alternative aspect namely-whether the application for shares is a hiring of any services for consideration in order to come within the parameters of Sub clause (ii) to Clause (d ). What has been said above applies mutatis mutandis in this context as well as in fact with greater force for the added reasons, which follow: 16. Inevitably, in this context the issue is whether the Company in making a public issue of the shares and inviting applications therefore, holds out or extends any service within the meaning of the Act which are to be hired for consideration. This necessarily takes us to the definition of a service in Clause (o) which is in the terms following:-