The plaintiff’s options for legal action were restricted to suing for unpaid consideration or claiming damages, as the sale and transfer of the shares had already been completed. – Delhi HC
Title: Shasvat Nakrani Versus Ashneer Grover
Decided on: 15.12.2023
+ CS(COMM) 166/2023
CORAM: HON’BLE MR. JUSTICE SACHIN DATTA
Facts of the Case:
In August 2016, the plaintiff and Mr. Bhavik Koladiya formed “M/s EZY Services,” with a 40-60% stake. In March 2018, they established “RIPL,” a private limited company, each owning 5000 equity shares, transferring all rights to “BharatPe” from EZY to RIPL.
The defendant became RIPL’s CEO in May 2018. The plaintiff claims an agreement to sell 2,447 equity shares at INR 10 each, totaling INR 24,470 (24.47% ownership). The defendant allegedly failed to pay the agreed amount on July 2, 2018, despite the share transfer via “Form SH-4.”
The plaintiff argues for non-payment, presenting bank documents. On March 18, 2023, they issued a “Rescission and Termination Notice,” canceling the agreement. The defendant denies non-payment, asserting cash payment on July 2, 2018.
The plaintiff is suing for contract rescission and seeks interim injunctions under Order XXXIX Rule 1 and 2 of the Code of Civil Procedure, 1908.
Legal Provisions involved in the case:
- Section 12(2) of the Sale of Goods Act, 1930
- Section 45 and 46(2) of the Sale of Goods Act, 1930
- Section 65 of the Indian Contract Act, 1872
The plaintiff invokes Section 12(2) of the Sale of Goods Act, 1930, asserting that the defendant’s failure to pay hindered the title transfer of goods (shares). They argue that non-payment, akin to non-delivery, allows them to treat the contract as revoked. Sections 45 and 46(2) of the Sale of Goods Act are cited, claiming remedies for an “unpaid seller” whose ownership hasn’t been transferred.
The plaintiff also relies on Section 65 of the Indian Contract Act, 1872, arguing it applies due to the Sale of Goods Act’s incorporation of the Contract Act. They assert that voiding the contract triggers Section 65’s consequences.
In summary, the plaintiff contends the defendant, in an “agreement to sell,” cannot possess shares without payment. They dispute the relevance of digitally signed company records under the Companies Act. The plaintiff refers to the Pawan Hans Helicopters case, citing a lack of documentation supporting the purchase. They seek parity with an order restricting the defendant from trading contested shares and claiming misrepresentation of share ownership. The plaintiff emphasizes that denying the injunction would cause irreparable harm, asserting the balance of convenience is in their favor.
Issues framed by the Court:
Issue 1. Whether or not the Defendant became a Shareholder in the Plaintiff’s Company?
Issue 2. Whether or not the non-payment of compensation prevented the contract for the sale of shares from fructifying.
Courts Judgement and Analysis:
In Issue No. 1, the court upheld the validity of the share transfer from the plaintiff to the defendant on July 2, 2018, documented in the “Form SH-4.” Despite the plaintiff’s claim of non-received consideration, the executed form complies with the Companies (Share Capital and Debentures) Rules, 2014, and Rule 11 mandates timely delivery to the company within sixty days.
Section 88 of the Companies Act, 2013, and Rules 5(1) and 41 of the Companies (Management and Administration) Rules, 2014, require prompt entry into the register of members. Rule 3 specifies comprehensive particulars in the register, and Rule 8 mandates authentication.
The plaintiff’s non-contestation during the statutory process and the absence of objections support the validity of the transfer. Judicial pronouncements reinforce this, emphasizing compliance with the Companies Act and rules. Subsequent actions, including the execution of 16 agreements and significant capital infusion, further affirm the defendant’s shareholder status. The plaintiff’s claim of misrepresentation is untenable, given active participation in agreements and substantial personal consideration received.
On Issue no. 2 the court emphasized that The plaintiff has contended that non-payment of compensation thwarted the share sale contract, but the court dismissed this, citing the Sale of Goods Act. It highlighted that delayed payment doesn’t void a sale contract, and emphasized the significance of contract conclusion in share sales. The court referred to Section 46 of the Sale of Goods Act, outlining an unpaid seller’s rights, clarifying that the lien only applies if the seller possesses the goods, which wasn’t the case. Section 47, covering the seller’s lien, was also cited, emphasizing its relevance only when the seller has possession. The court pointed out the plaintiff’s legal notice admitting consideration postponement, refuting the claim of unpaid amount during Form SH-4 execution. With the sale completed, the court limited the plaintiff’s options to suing for unpaid consideration or claiming damages, ultimately concluding the plaintiff’s claim as meritless, affirming the defendant’s ownership of the shares.
Conclusion:
The defense’s counsel had argued that the current pleadings conflict with a previous case (CS (OS) 711/2022) where the defendant was acknowledged as a shareholder. The court acknowledged this inconsistency and denied provisional relief to the plaintiff. While rejecting an interim injunction, the court directed the defendant to inform the court in advance if there are any plans to transfer or deal with the shares in question due to their relevance in the ongoing lawsuit, which also includes a claim for damages.
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Written by- Aditi