1995 (7) TMI 331 - HC - Companies Law

Summary

Issues:
1. Whether transferring major shares of a company amounts to subletting under a lease deed.
2. Whether the provisions of the Companies Act, 1956, protect the company's right to transfer shares.
3. Whether the corporate veil can be lifted to prevent subletting in this case.

Analysis:

1. The main issue in this case is whether transferring major shares of a company constitutes subletting under a lease deed. The applicant argues that such transfer would amount to subletting, as it involves circumventing the lease agreement by allowing third parties to occupy the demised premises. The respondent, on the other hand, contends that inviting others to purchase shares or selling shares retained by the company is a legitimate right under the Companies Act and does not amount to subletting.

2. The respondent relies on Section 34 of the Companies Act, 1956, which establishes that a company is a separate legal entity from its shareholders. The respondent argues that changes in shareholding do not affect the ownership of leasehold rights and should not be considered as subletting. The applicant, however, asserts that the corporate veil should not be used to evade the terms of the lease agreement and that the true nature of the transaction should be examined.

3. The applicant invokes the concept of lifting the corporate veil to prevent subletting. Referring to legal precedents, the applicant argues that the corporate veil should be lifted when it is used to wilfully disobey court orders or evade contractual obligations. However, the court finds that in this case, the respondent's actions of inviting share subscriptions or selling shares do not amount to subletting under the lease deed, and therefore, the application for injunction is dismissed.

In conclusion, the court rules in favor of the respondent, stating that the applicant has not demonstrated a prima facie case or balance of convenience to warrant granting an injunction. The court emphasizes that the respondent's actions of transferring or selling shares do not constitute subletting under the lease agreement, as the company's rights to manage its shareholding are protected under the Companies Act.