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TMI Blog2023 (12) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... vations Private Limited ("RIPL"), which, as a result of a share-split and a bonus share issue, today stand at Twenty Seven Thousand Six Hundred and Twenty Seven (27,627) equity shares (hereinafter, the "plaintiff's shares"), stands rescinded and terminated in accordance with law and contract, and consequently has become void. 2. The plaintiff has further sought a declaration that "Form SH-4", dated 02.07.2028 (hereinafter, the "Form SH-4"), executed by the plaintiff in favour of the defendant pursuant to the Agreement be declared to be void and liable to be cancelled; and a further declaration that the plaintiff continues to be the owner of the plaintiff's shares, together with all rights that accrue in respect thereof. The plaintiff has also sought permanent prohibitory injunctions restraining the defendant (including his attorneys, assigns, successors-in-interest, agents, authorized persons or anyone acting for and/or on his behalf) from alienating, transferring, selling, creating any encumbrance, third-party rights or any other interest of any kind whatsoever in the plaintiff's shares, or otherwise dealing with the plaintiff's shares in any manner whatsoever; restraining th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiff and Mr. Bhavik Koladiya, jointly founded and incorporated "RIPL" as a private limited company with an equal shareholding of 5000 equity shares each. M/s EZY Services is stated to have assigned all rights, title and interest, together with goodwill in its brand "BharatPe" to RIPL. It is stated that in May 2018, the defendant was hired as a CEO of RIPL. It is averred in the plaint as follows:- "12. It was agreed that the Plaintiff would transfer to the Defendant Two Thousand Four Hundred and Forty-Seven (2,447) equity shares in RIPL, together with all rights attached to them (already defined in the Plaint as the "Plaintiff's Shares"), for Rupees Ten (INR 10) per equity share, payable as consideration. This would translate into a total consideration of Rupees Twenty-Four Thousand Four Hundred and Seventy (INR 24,470) (hereinafter, the "Purchase Consideration") for Twenty-Four Point Four Seven Percent (24.47%) shares in RIPL (this agreement is already defined in the Plaint as the "Agreement"). It was also decided that Mr. Koladiya would transfer to the Defendant Seven Hundred and Forty-Five (745) equity shares in RIPL, together with all rights attached to them, for Rupees Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- No. of Securities being transferred Consideration received (Rs.) In figures In words In words In figures 2447 Two Thousand Four Hundred Forty Seven Rupees Twenty Four Thousand Four Hundred Seventy Only Rs. 24, 470/- Distinctive Number From 7554 To 10000 Corresponding Certificate No. Transferor's Particulars:- Registered Folio No. 02 Sr. No. Name(s) in full Signature(s) 1. Shashvat Munsukhbhai Nakrani Sd/- I, hereby confirm that the Transferor has signed before me. Signature of witness Name and address Transferee's Particulars:- Name in Full Father's/Mother's/Spouse Name Address & Email Id Occupation Existing Folio No, if any Signature 1. 2 3 4 5 6 Mr. Ashneer Grover Mr. Ashok Grover B-1/36, 2nd Floor, Malviya Nagar, New Delhi - 110017 Ashneergrover@gm ail.com Business NA Sd/- Folio No. of Transferee: 03 Specimen Signature of Transferee 1 sd/- 2 sd/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red and Twenty Seven (27,627) equity shares (hereinafter, "our Client's Shares"). For the purpose of fixing consideration under the Agreement, each of our Client's Shares were valued at Rupees Ten (INR 10); thereby making the aggregate consideration payable under the Agreement for our Client's Shares as Rupees Twenty Four Thousand Four Hundred and Seventy (INR 24,470) (hereinafter, the "Purchase Consideration"). Pursuant to the Agreement, our Client performed his obligations in their entirety on 02 July 2018 by executing the necessary forms, namely, Form No.SH-4 (Securities Transfer Form), dated 02 July 2018, to give effect to the transaction in respect of our Client's Shares in your favour, believing in good faith that you would pay the Purchase Consideration to our Client. However, without having paid the Purchase Consideration to our Client, you took advantage of our Client's performance of all his obligations under the Agreement, and got your name recorded in the register of share transfer, and register of members, of RIPL in respect of our Client's Shares. Since the execution of the Agreement, and having taken advantage of our Client having signed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also entitled to all other rights that may get attached with our Client's Shares from time to time. Consequentially, our Client also seeks and demands that you cease and desist from(a) alienating, transferring, selling, creating any encumbrance, third-party rights or any other interest of any kind whatsoever in our Client's Shares, or otherwise dealing with our Client's Shares in any manner whatsoever, (b) exercising any right of any kind whatsoever in respect of our Client's Shares, and (c) wrongly professing, or claiming to be, the owner of our Client's Shares amongst the public at large in any manner whatsoever. Our Client further reserves his right to alternatively claim compensatory damages arising out of your fundamental breach, non-performance and repudiation of the Agreement, on account of which the Agreement has been rescinded and terminated by our Client, and has become void. All rights are reserved. Yours sincerely, Raghavendra Mohan Bajaj and Garima Bajaj (Advocates) Email: [email protected]" 11. The defendant replied to the aforesaid termination notice on 19.03.2023, stating as under :- "3. That it would appear that your Client ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s transferred by him to the Defendant. However, the Plaintiff has failed to attach even one document in the present Plaint wherein the Plaintiff has demanded the payment of the purchase consideration from the Defendant evincing the fact that the purchase consideration had already been paid to the Plaintiff by the Defendant. 14. It is humbly submitted that the entire suit of the Plaintiff falls flat on this ground alone that the purchase consideration had already been paid by the Defendant and now the Plaintiff is perjuring himself by making a clearly false averment that the purchase consideration was not paid to him. That to demonstrate the same, the Defendant seeks to rely upon the Plaint filed by the Company i.e. RIPL against the Defendant and his family members in the matter captioned as "Resilient Innovations Private Limited v. Madhuri Jain Grover and Ors." bearing CS (OS) No. 771 of 2022 pending before this Hon'ble Court. It is pertinent to mention herein that the above captioned suit has been filed under the affidavit of the Plaintiff acting as the Authorised Representative of the Company. 15. It is submitted that the Para No. 9 of the above mentioned suit filed by RIPL u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll supervision of the Board." (Emphasis Supplied)" 14. It is further averred in the written statement that the plaintiff has executed multiple agreements, including agreements where RIPL had raised investments, acknowledging that the subject equity shares stand transferred in favour of the defendant. 15. It is therefore submitted that the plaintiff is estopped from denying the shareholding of the defendant and the binding nature of the agreement dated 02.07.2018. It is emphasized that the plaintiff itself was a signatory to the said agreements. The details of the same are set out in the written statement as under :- "21. .......... S.No. Date Particulars 1 22nd July 2018 Share subscription and shareholder's agreement between Resilient Innovations Pvt. Ltd., Ashneer Grover, Bhavik Koladia, Sashvat Nakrani, Vibha Paul Rishi and SAAM Partners LLP 2 13th Oct 2018 Share subscription and shareholder's agreement between Resilient Innovations Pvt. Ltd., promoters, other existing shareholders and BEENEXT2 PTE. Ltd. 3 12th Dec 2018 Subscription and Shareholders' Agreement Between Resilient Innovations Private Limited and BEENEXT2 PTE. Ltd. and SciInvestments VI and Sequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over, Shashvat Mansukhbhai Nakrani, persons whose names are listed in schedule 1 (other existing shareholders), Beenext2 PTE. Ltd., Beenext Accelerate Fund PTE. Ltd., Sci Investments VI, Redwood Trust, Grace Software Holdings, L.P., Ribbit Cayman in Holdings V, Ltd., Steadview Capital Mauritius Limited, ABG Capital, Steadview Capital Opportunities PCC Cell 0121-004, Coatue PE Asia 27 LLC, Coatue PE Asia 46 LLC, Amplo Opportunities I, L.P. and Amplo II, L.P. 12 10th Feb 2021 Share Subscription Agreement by and amongst Resilient Innovations private limited, Ashneer Grover, Shashvat Mansukhbhai Nakrani, Beenext Accelerate Fund PTE. Ltd., Grace Software Holdings, L.P., Ribbit Cayman in Holdings V, Ltd., Steadview Capital Mauritius Limited, Coatue PE Asia 27 LLC, Coatue PE Asia 46 LLC, Amplo Opportunities I, L.P. and Amplo II, L.P. 13 10th Feb 2021 Share Purchase Agreement by and between Coatue PE Asia 27 LLC, Coatue PE Asia 46 LLC, Persons Listed in Schedule IV of this Agreement (Sellers) and Resilient Innovations private limited. 14 4th Aug 2021 Share Subscription Agreement by and amongst Resilient Innovations private limited, Ashneer Grover, Shashvat Mansukhbhai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D FURTHER THAT the Directors of the Company, be and are hereby severally authorized to take all necessary actions to ensure that the transfer of the above said equity shares of the Company is completed including endorsing the transfer on the original share certificate in favour of Mr. Ashneer Grover." FOR RESILIENT INNOVATIONS PIVATE LIMITED ------------------------- -sd- BHAVIK KOLADIYA DIRCTOR DIN: 08090416 ADDRESS: 3B, SIDSAR ROAD, KAMINIYA NAGAR, ADHEWADA BHAVNAGAR, TAKHTESHWAR, GUJARAT 364002" 17. It is further averred in the written statement that in the above circumstances, the transaction in question conforms to Section 20 of the Sale of Goods Act and the property in the concerned goods (shares) stood transferred to the defendant inasmuch as the contract in question was (i) an unconditional contract (ii) in respect of specific goods; (iii) the said goods were in a deliverable state. 18. It is averred that even the plaintiff's version conforms to Section 20 of the Sale of Goods Act, 1930. It is consequently averred that the reliefs sought by the plaintiff are contrary to the Sale of Goods Act, 1930 and the plaintiff has lost his right of lien in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the provisions of the ICA will apply, subject to inconsistency with the SOGA. Once a contract, which is voidable at the option of a party, has been rendered void, the consequences under Section 65 of ICA would ensue. 24. It is contended that the property in the plaintiff's shares cannot get transferred to the defendant without payment of the purchase consideration, given that the initial agreement, pursuant to which the plaintiff's shares were to be transferred to the defendant, was an "agreement to sell". 25. It is further submitted that the defendant has not filed any document/material to dislodge any onus which lies on him to prove that the cash was paid to the plaintiff "then and there". As regards the execution of Form SH-4, it is contended that "Form SH-4" (issued under Section 56 of the Companies Act, 2013) is a prescribed standard form which by itself is not proof of payment of cash, nor can it be said to be a receipt for cash payment. Since it is a prescribed form, no person can alter its contents. Therefore, even when consideration is not received, or is to be received on a future date, even then the form will reflect the words "Consideration Received", although it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a reasonable period of time after the agreement was entered into". It is contended that this statement itself demonstrates that the plaintiff had agreed to postpone the receipt of consideration and hence the plaintiff's contention that the stipulation with respect to time of payment was a condition essential to the main purpose of the contract, is clearly misconceived. 33. It is further submitted that the plaintiff not only executed "Form SH4" but also executed a series of documentation recognizing the rights of the defendant. It is contended that the plaintiff never reserved any rights of disposal whatsoever but rather assented to the unconditional appropriation of the shares and further recognized the defendant as a member/shareholder on the basis of the shares purchased by the defendant from the plaintiff; "Form SH-4" dated 02.07.2018 acts as a "document of title to goods" as defined in Section 2(4) of SOGA. This is why when a share transfer form is executed; and also the transferee's name is recorded in the register of shareholders; then the inexorable conclusion is that the title of the shares has passed and the delivery of the shares has taken place and that the transfer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or such transfer has not been paid; the only remedy available to the seller is that to sue for price. 34. The defendant also relies upon the series of agreements whereby the plaintiff and the defendant sold their shareholding to external investors, in which the defendant has been duly reflected to be a shareholder. It is emphasized that there was no demur or protest whatsoever at any stage as regards the shareholding of the defendant in the concerned company. 35. On the basis of the above, it is contended that the plaintiff has failed to make out a prima facie case. It is further stated that the balance of convenience is also not in favour of the plaintiff and it is in fact the defendant who will suffer an irreparable loss, if any injunction was to be granted to the plaintiff. Analysis and Conclusion 36. Having considered the respective submissions made on behalf of the parties, I find no merit in the case set up by the plaintiff for the purpose of the reliefs sought in the present application. The reasons are enumerated hereunder. Documentation issued in respect of the transfer of shares to the Defendant; delivery of the shares and the subsequent conduct of the parties 37. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 5(1) of the Companies (Management and Administration) Rules, 2014, the entries in the registers maintained under Section 88 of the Companies Act shall be made within 07 days after the Board of Directors or its duly constituted committee approves the allotment or transfer of shares/debentures or any other securities, as the case may be. 41. It is thus evident, that the transfer of shares in favour of the defendant and the consequent entry/recordal of the defendant as a shareholder of the concerned company was pursuant to approval by the Board of Directors or a duly constituted committee of the said Board. The Board Resolution dated 02.07.2018, which was admittedly passed in the present case, has been reproduced hereinabove. 42. It is also notable that Rule 3(1) and Rule 3(2) of the Companies (Management and Administration) Rules, 2014, inter alia, provide as under:- "3. Register of members.-(1) Every company limited by shares shall, from the date of its registration, maintain a register of its members in Form No. MGT-1:" (2) In the case of a company not having share capital, the register of members shall contain the following particulars, in respect of each member, namely:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties that the concerned company has not adhered to the provisions of under the Companies (Management and Administration) Rules, 2014 and the Companies (Share Capital and Debentures) Rules, 2014. 47. The law regarding the manner of effectuating transfer of title of shares is also no longer res integra and has been the subject matter of numerous judicial pronouncements. 48. In Maneckji Pestonji Bharucha and Anr. v. Wadilal Sarabhai and Co. 1926 Vol 94 1.C.824 (PC), the Privy Council was concerned with a situation where blank transfer Forms had been executed by the registered holders of shares of a company. In that context, it was observed by the Privy Council as under:- "So soon, therefore, as Arajania, acting for Bharucha, handed Gora the certificates and transfers and Gora accepted them and gave the cheque, the goods became ascertained goods, the sale was complete and the property passed. From that time onward Bharucha and Arajania could only sue Gora on the cheque, or for the price of the shares unpaid in respect that the cheque had not been honoured. They had no longer any jus in re of the certificates and transfers. They had no statutory lien, for they had parted with poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmaterial whether the time of payment of the price or time of delivery of the goods, is postponed and opined that the mere fact that the payment was not made on 5-2-1948 or that the delivery of shares was not made does not mean that the property did not pass on to the buyers in Feburay, 1948. This however, omits to notice that in terms of Section 21 unless shares were specified by serial numbers which can be identified it cannot be said to be a contract for sale of specified goods as contemplated by Section 21 of the Act, as they would remain unascertained. See (1928 ILR 50 Allahabad 695 (1) A.W. Domingo v. L.C. De Souza. It is by now well established that only a person who is on the register is in full sense of word the owner of the share. But the title to get on the register consists in possession of a certificate together with transfer signed by the registered holder". Vide (AIR 1926 PC 38) (2) Maneckji Pestonji Bharucha v. Wadilall Sarabhai & Company. An agreement to transfer shares in a company accompanied with the actual instrument of transfer which has not been completed so far as the transferor could complete it does not amount to a transfer deed sufficient to cause title t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egisters of the company as owner of the shares that the transferee would acquire legal ownership in the shares." [R. Dalmia's case (supra.)]. In the present case admittedly there is not even a suggestion that any transfer forms or the share scrips were handedover to Mrs. Jain or Mr. Dalmia by the assessee. The argument, therefore, that equitable ownership in the shares was transferred to the assessee on 5-2-1948 must be repelled. That without the specification of the shares the contract for sale for specific goods as contemplated by Section 21 of the Sale of Goods Act cannot be held to be complete was also accepted by the said Division Bench. We can find no difference at all not only on the points of law but frankly more or less even on the question of facts, between the instant case and the above case." 50. Again, in Howrah Trading Co. Ltd. v. Commissioner of Income Tax, Central, Calcutta AIR 1959 SC 775, it was, inter alia, held as under :- "7. The position of a shareholder who gets dividend when his name stands in the register of members of the company causes no difficulty whatever. But transfers of shares are common, and they take place either by a fully executed docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same is contrary to the scheme of the Sale of Goods Act, 1930. 55. There is no quarrel with the proposition that title in goods (which include shares) is transferred from the seller to the buyer only on sale of goods. This position has been affirmed by the Supreme Court in Arihant Udyog v. State of Rajasthan (2017) 8 SCC 220, wherein it has been observed as under : "19. Section 20 deals with a situation where specific goods are in a deliverable state. In that case property in goods passes to the buyer when the contract is made, even when time of payment of the price or the time of delivery of the goods or both is postponed. In order that Section 20 is attracted, two conditions have to be fulfilled: (i) the contract of sale is for specific goods which are in a deliverable state; and (ii) the contract is an unconditional contract. If these two conditions are satisfied, Section 20 becomes applicable (see Shalimar Chemical Works Ltd. [Agricultural Market Committee v. Shalimar Chemical Works Ltd., (1997) 5 SCC 516] ). 20. However, Section 21 is exception to Section 20 which states that where there is a contract for sale of specific goods and the seller is bound to do som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riting and partly by word of mouth or may be implied from the conduct of the parties." "11. Stipulations as to time.- Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract." "19. Property passes when intended to pass.- (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer." "20. Specific goods in a deliverable state.- Where there is an unconditional contract for the sale of specific goods in a deliverable state, the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession of them". Admittedly, the plaintiff in the present case is no longer in the possession of the shares, the same having been delivered to the defendant pursuant to execution of "Form SH-4". Furthermore, Section 46(2) deals with a situation where property in the goods has not passed to the buyer in terms of a contract of sale. 63. Section 47 of the Sales of Goods Act deals with the Seller's lien and provides as under:- "47. Sellers lien: (1) Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely:- (a) where the goods have been sold without any stipulation as to credit; (b) where the goods have been sold on credit, but the term of credit has expired; (c) where the buyer becomes insolvent. (2) The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer." A bare perusal of the above provision makes it clear that the same is applicable only when an unpaid seller is in the possession of the concerned goods. 64. For the purpose of the present applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole transaction is vitiated by actual fraud "(v)." Source: Pollock & Mulla - The Sale of Goods Act, Fifth Edition." 67. The fact that the sale and transfer of shares stands concluded in the present case is also evident from the fact that admittedly, there is no reservation of right of disposal in favour of the seller of the goods (i.e. the plaintiff). In this regard, reference would be apposite to Section 25 of the Sale of Goods Act, 1930, which provides as under:- "25. Reservation of right of disposal.- (1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. (2) Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of lading or railway receipts, as the case ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iff. 71. In addition to the judgements in Maneckji (supra), M/s Bharat Nidhi (supra) and Howrah Trading (supra), in Uday Punj vs. Commissioner of Income Tax, (2012) SCC Online Del 3517, this Court again had occasion to consider as to when a contract for sale of shares could be considered to be concluded. In Uday Punj, in the context of sale of shares by existing shareholders of a company to the members of the public, the question that arose for consideration before this Court was whether transfer of the shares stood completed when shares were transferred from the demat account of the selling shareholders into the demat account of the Registrar to the issue, or whether it could be said to be completed only when sale price of the shares was transferred into the account of the selling shareholders, it was held by this Court as under : "9. Section 19 of the Sale of Goods Act, to the extent it is relevant, provides that where there is a contract for sale of specific or ascertained goods, the property in them is transferred to the buyer at such time, as the parties to the contract intend it to be transferred. It further provides that to ascertain the intention of the parties, regard s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which has been affirmed and verified by the plaintiff herein as the authorised representative of the plaintiff company in that suit, it has been pleaded as under:- "16. It is humbly submitted that this leads to the inexorable conclusion that the Plaintiff had admittedly been paid the purchase consideration by the Defendant as admitted by the Plaintiff himself. Hence under no circumstances can the Plaintiff now claim that the purchase consideration had not been paid by the Defendant when in another suit pending before this Hon'ble Court the Plaintiff, as an authorised representative of the Company, has claimed and affirmed that the Defendant had in fact "contributed" a paltry sum on INR 31,920 to become a shareholder of the Company, the said statement has been reaffirmed by the Plaintiff in his Replication(supported by the duly affirmed affidavit of the Plaintiff) to the Written Statement filed by the Defendant herein. That the relevant para of the Suit captioned as "Resilient Innovations Private Limited v. Madhuri Jain Grover and Ors." bearing CS (OS) No. 771 of 2022 has been reproduced below for the kind consideration of this Hon'ble Court: "9. Defendant No. 2's associatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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