1997 (10) TMI 326 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of Civil Court.
2. Existence of Agreement for Pre-emption.
3. Transferability of Shares and Agreement for Pre-emption.
4. Interim Injunction Against Transfer of Shares.
5. Injunction Against Registration of Transfer of Shares.

Issue-wise Detailed Analysis:

I. Jurisdiction of Civil Court:
The court examined whether the Civil Court has the jurisdiction to entertain the suit based on the claim for pre-emption and the prayer for injunction against the registration of transfer of shares. The court referred to various precedents and statutory provisions, concluding that the Civil Court's jurisdiction is barred concerning the prayer for injunction against registration of transfer of shares due to the exclusive jurisdiction of the Company Law Board (CLB) under sections 111 and 111A of the Companies Act. However, the jurisdiction is not barred for adjudicating and enforcing the right of pre-emption, which is a common law right.

II. Existence of Agreement for Pre-emption:
The plaintiff claimed a right of pre-emption based on an alleged agreement with defendant No. 2 at the time of selling shares in October 1993. The court found no contemporaneous record to substantiate this claim and noted that the letter dated 16-3-1994 from Khanna Securities Ltd. was not sufficient to prove the existence of such an agreement. The court concluded that while the plaintiff raised a triable issue, it did not make out a strong prima facie case of the agreement's existence.

III. Transferability of Shares and Agreement for Pre-emption:
The court discussed the concept of free transferability of shares in a public limited company under sections 82 and 111A(2) of the Companies Act. It referred to the Supreme Court's decisions in V.B. Rangaraj and Gujarat Bottling Co. Ltd., which held that shares are freely transferable unless restricted by the Articles of Association. The court concluded that the alleged agreement for pre-emption, not being incorporated into the Articles of Association, cannot be enforced.

IV. Interim Injunction Against Transfer of Shares:
The court considered whether the plaintiff was entitled to an interim injunction to restrain the transfer of shares by defendant Nos. 2 and 8 to defendant Nos. 6 and 7. It concluded that damages would be an adequate remedy for the plaintiff if it ultimately succeeded in the suit. The balance of convenience was not in favor of the plaintiff, and thus, no interim injunction was warranted.

V. Injunction Against Registration of Transfer of Shares:
The court held that the Civil Court has no jurisdiction to entertain the suit for permanent or temporary injunction against the registration of transfer of shares due to the exclusive jurisdiction of the CLB under sections 111 and 111A of the Companies Act. The plaintiff's remedy lies with the CLB for any disputes regarding the registration of transfer of shares.

Conclusion:
The appeal was dismissed, and the court concluded that the Civil Court's jurisdiction is barred concerning the prayer for injunction against registration of transfer of shares but not for adjudicating the right of pre-emption. The plaintiff did not make out a strong prima facie case for the existence of the agreement for pre-emption, and the concept of free transferability of shares under the Companies Act rendered the alleged agreement unenforceable. The court found no grounds for granting an interim injunction against the transfer of shares.