0

The Delhi High Court Orders Detailed Oversight of Share Transfers in Corporate Dispute: Share Allotment Nullified, Directed Proceeds to Court Registry

Case Title – Morgan Securities & Credits Pvt. Ltd. Vs. BPL Limited & Ors.

Case Number – FAO (OS)(COMM) 174/2023 & CM APPL. 43309/2023

Dated on – 15th May, 2024

Quorum – Justice Rajiv Shakdher & Justice Amit Bansal

FACTS OF THE CASE
In the case of Morgan Securities & Credits Pvt. Ltd. Vs. BPL Limited & Ors., whirls around a dispute between Morgan Securities & Credits Pvt. Ltd. (the Appellant herein) and BPL Limited & Ors. (the Respondents herein) concerning the transfer of shares in a subsidiary company (Defendant No. 2 herein). The Appellant is a company engaged in lending monies and providing the bill discounting services whereas the Respondent No.1 is a company engaged in various businesses, inclusive of healthcare. The Appellant initiated arbitration proceedings against the Respondent No.1 due to its default in discharging its liabilities under certain agreements. Orders permitting the Respondent No.1 to transfer its healthcare business to the Respondent No.2, subject to provision of certain securities, were passed by the Arbitral Tribunal. The Appellant challenged these orders in the court of law, alleging that the subsequent actions by the Respondent No.1, inclusive of the share allotments, were violative of the orders of the court. The court found the Respondent No.1 and its directors guilty of the offense of contempt for intentionally violating the orders of the court concerning the shareholding in the Respondent No.2. Despite of which, the transfers and share allotments continued, leading to the Appellant instituting a suit seeking for a declaration that the allotments made by the Respondents in favour of certain parties be declared null and void.

ISSUES
The main issue of the case whirled around whether the allotments of share made by the Respondent No.1 to the other parties were violative of the orders of the court?

Whether the Respondent No.7 and the Respondent No.8 could transfer their shareholding in Respondent No.2?
Whether the declaration of the share allotment to be declared null and void, appropriate and justified given the situation of the case and the alleged violations of the orders of the court?

LEGAL PROVISIONS
Section 34 of the Arbitration and Conciliation Act, 1996 prescribes the provision of Application for setting aside the arbitral awards

Section 37 of the Arbitration and Conciliation Act, 1996 prescribes the provision of Appealable orders
Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 prescribes Granting or refusing to grant an interim measure under Section 17
Order XXXIX Rule 4 of the Code of Civil Procedure, 1908 states that the Order for injunction may be discharged, varied or set aside

CONTENTIONS OF THE APPELLANT
The Appellant, through their counsel, in the said case contented that the allotments made by the Respondent No.1 were violative of the orders of the court restraining the Respondent No.1 from diluting its shareholding in Respondent No.2.

The Appellant cited a previous order by a Single Bench holding Respondent No.1 and its director guilty of contempt for intentionally violating the orders of the court and further sought a restoration of the status quo prevailing before the allotments were made.

CONTENTIONS OF THE RESPONDENT
The Respondents, through their counsel, in the said case contented that they should be allowed to transfer their shareholding in Respondent No.2, subjective of certain conditions, as they were not responsible for any illegality in subscribing to the rights issue of the Respondent No.2.

Further the Respondents asserted that the interim order restraining the Respondent No.1 from diluting its shareholding would not apply after the arbitration award had been passed.

COURT ANALYSIS AND JUDGMENT
The court in the case of Morgan Securities & Credits Pvt. Ltd. Vs. BPL Limited & Ors., observed that the Respondent No. 7 and the Respondent No.8 were directed to deposit the entire sale consideration of their shareholding in the Respondent No.2 before transferring the shares. The court also directed Respondent No.7 and the Respondent No.8 to undertake not to seek deletion of their names as defendants, allowing the court to pass the appropriate orders against them, if required. The court further directed that the details of the transferees and the price agreed upon for the shares be furnished to the court, with the Appellant having the liberty to challenge the proposed sale consideration if deemed below the market price and that upon sale of the shares, the consideration received was to be deposited with the court, pending the outcome of the appeal under Section 37 of the Arbitration Act. The court clarified that its observation in the judgment would not influence the outcome of the other related proceedings. The Appeal and the pending applications were disposed of accordingly.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Judgement Reviewed by – Sruti Sikha Maharana

Click Here to View Judgment

Leave a Reply

Your email address will not be published. Required fields are marked *