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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 ..... the transfer of shares in favour of the defendant and the subsequent inclusion of the defendant in the register of members of the plaintiff was pursuant to a statutorily recognised process. For the purpose of the present application, there can be no presumption against the validity of the transfer in favour of the defendant pursuant to a statutorily mandated process, especially when the execution of Form SH-4 by the plaintiff is admitted and it is not the case of the either of the parties 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. In MANECKJI PESTONJI BHARUCHA AND OTHERS VERSUS WADILAL SARABHAI AND COMPANY AND OTHERS [ 1926 (3) TMI 1 - MADRAS HIGH COURT] , the Privy Council was concerned with a situation where blank transfer Forms had been executed by the registered holders of shares of a company. Admittedly, in all these agreements, to which both the plaintiff and the defendant were parties, the defendant was represented to be as a shareholder of the concerned company. It is completely untenable for the plaintiff to suggest tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafter, 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 the defendant from exercising any rights of any kind whatsoever in respect of the plaintiff s shares; and restraining the defendant from (wrongly) professing, or claiming to be, the owner of the plaintiff s shares amongst the public at large in any manner whatsoever. Alternative relief seeking compensation and damages has also been claimed by the plaintiff. 3. Alongwith the suit, the plaintiff has also filed an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ten (INR 10) per equity share, payable as consideration, which would translate into a total consideration of Rupees Seven Thousand Four Hundred and Fifty (INR 7450) for Seven Point Four Five Percent (7.45%) shares in RIPL. 13. Accordingly, pursuant to the Agreement, on 02 July 2018, the Plaintiff executed a Form SH-4 in favour of the Defendant in respect of the Plaintiff s Shares. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- Rs. 10/- Rs. 10/- 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 18.03.2023. In the said notice, it has been stated as under:- Raghavendra Mohan Bajaj Advocate Garima Bajaj Advocate on Record D-256, LGF, Defence Colony, New Delhi-110024. Email: [email protected] Mobile No. 9810248083 Office No. 011-40159656 9810048083 Office email: [email protected] By Email, Courier, Speed Post and WhatsApp To Mr. Ashneer Grover N-114, Second Floor, Panchsheel Park, New Delhi-110017 Email Address: [email protected] and [email protected] Phone Number: 9560024869 18th March 2023 Re: Notice for Rescission and Termination of the agreement, dated 02 July 2018 on behalf of Mr. Shashvat Nakrani. Dear Mr. Grover: We write on behalf of, and under instructions from, our Client, Mr. Shashvat Nakrani (hereinafter, our Client ), with reference to the agreement entered into ( Agreement ) between our Client and you on 02 July 2018 in respect of sale/purchase of our Client s (then) Two Thousand Four Hundred and Forty Seven (2,447) equity shares in Resilient Innovations Private Limited ( RIPL ), which, as a result of a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es has not passed on to you, notwithstanding the execution of the Form SH-4, dated 02 July 2018. Further, the false statements being made by you in public about your title and ownership of our Client's Shares, as stated above, evidence a complete refusal by you to pay the Purchase Consideration. You have also disabled yourself from performing the Agreement. Accordingly, our Client, with immediate effect, hereby rescinds and terminates the Agreement because of your fundamental breach, non-performance and repudiation of the Agreement, which goes to the root of the Agreement. As a result of the above, the Form SH-4, dated 02 July 2018, is void, given that property/title over our Client s Shares never stood transferred to you. Thus, the Form SH-4, dated 02 July 2018, is liable to be declared as such. Accordingly, our Client continues to be the legal and beneficial owner of our Client's Shares together with all rights that have accrued in respect of our Client's Shares. You are liable to restore to our Client the advantage that you have gained under the Agreement. This includes recording of ownership over our Client's Shares, together with all rights attached t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the three thousand one hundred and ninety-two (3,192) equity shares, the Plaintiff and the Defendant orally agreed on 02 July 2018 that the Plaintiff would transfer to the Defendant two thousand four hundred and forty-seven (2,447) to them for Rupees Ten (INR 10) per equity share, payable as consideration. That this translated 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 defined as the Agreement ). That remaining equity shares were transferred by Mr. Koladiya by way of a separate agreement between him and the Defendant which is not a part of the present dispute. 12. That pursuant to the Agreement, the Plaintiff admittedly executed a Form SH-4 in favour of the Defendant in respect of the Plaintiff s shares Two Thousand Four Hundred and Forty Seven (2,447) equity shares in RIPL. It is submitted that the Defendant paid the purchase consideration in cash then and there to the Plaintiff in pursuance of the agreement dated 02 July 2018. 13. It is humbly submitted that after almost 5 years the Plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 association with the Plaintiff began on 2 July 2018, when he became a shareholder of the Plaintiff by contributing a paltry sum of INR 31,920 against which he was transferred 3,192 shares in the Plaintiff company. On 5 November 2018, Defendant No. 2 was appointed as a Director of the Plaintiff. On 12 December 2018, he was appointed as the CEO of the Plaintiff pursuant to an Employment Agreement dated 12 December 2018 ( 2018 Employment Agreement ). The 2018 Employment Agreement provides that Defen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting shareholders), Grace Software Holdings, L.P., Beenext2 PTE. Ltd., Sci Investments VI and Sequoia Capital India Trust. 7 15 th August 2019 Share Subscription Agreement by and amongst Resilient Innovations private limited, Ashneer Grover, Shashvat Mansukhbhai Nakrani, Beenext2 PTE. Ltd., Sci Investments VI, Redwood Trust, Grace Software Holdings, L.P., Ribbit Cayman in Holdings V, Ltd., Steadview Capital Mauritius Limited and ABG Capital. 8 15 th August 2019 Shareholders Agreement by and amongst Resilient Innovations private limited, Ashneer Grover, Shashvat Mansukhbhai Nakrani, persons whose names are listed in schedule 1 (other existing shareholders), Beenext2 PTE. Ltd., Sci Investments VI, Redwood Trust, Grace Software Holdings, L.P., Ribbit Cayman in Holdings V, Ltd., Steadview Capital Mauritius Limited and ABG Capital. 9 13 th Feb 2020 Amended and Restated Shareholders Agreement by and amongst Resilient Innovations private limited, Ashneer Grover, Shashvat Mansukhbhai Nakrani, persons whos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtunities I L.P., Amplo II, L.P., Internet Fund VII. PTE. Ltd., DF International Partners II LLC, DF International Partners V LLC, SFSPVI LTD. and IP X Resilient, Ltd. 15 4 th Aug 2021 Amended and Restated Shareholders Agreement by and amongst Resilient Innovations private limited, Ashneer Grover, Shashvat Mansukhbhai Nakrani, Beenext2 PTE. Ltd., Beenext Accelerate Fund PTE. Ltd., Sci Investments VI, Redwood Trust, Sequoia Capital Global Growth Fund III Endurance Partners, L.P, Grace Software Holdings, L.P., IP X Resilient, Ltd, Ribbit Cayman IN Holdings V, Ltd., BP-E Ribbit Opportunity V LLC, Steadview Capital Mauritius Limited, ABG Capital, Steadview Capital Opportunities PCC Cell 0121-004, Coatue PE Asia 27 LLC, Coatue PE Asia 46 LLC, Coatue PE Asia 62 LLC, Amplo Opportunities I, L.P., Amplo II, L.P., Internet Fund VII PTE. Ltd, SFSPVI Ltd., DF International Partners II, LLC and DF International Partners V, LLC. 16 6 th Aug 2021 Share Purchase Agreement by and between Coatue PE Asia 62 LLC, Persons Listed in Schedule IV of this Agreement (Sellers) and Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1930 and the plaintiff has lost his right of lien in respect of the shares in question. Submissions of the respective Counsel 19. In the above background, learned senior counsel for the plaintiff has primarily contended that the title in the goods (shares) was not transferred to the defendant on account of non-payment of sale consideration. Reference is made on the various provisions of the Sale of Goods Act, 1930 ( SOGA ) to contend that payment of price , like delivery of goods is a statutory condition of any contract of sale, notwithstanding whether the same is a contractual condition. 20. It is further emphasized that for determining whether the property in goods has passed, the terms of contract have to be given precedence. Reliance has been placed on Section 12(2) of the Sale of Goods Act to contend that since there has been a breach of condition of contract of sale, which is essential to the main purpose of the contract, the same gives a right to the innocent party to treat the contract as repudiated. 21. It is further contended that if the condition of the payment of price is breached by the buyer then the seller is an unpaid seller under Section 45 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture date, even then the form will reflect the words Consideration Received , although it may not have actually been received. 26. It is further contended that records of a company which are maintained under the Companies Act, 2013, are not determinative in any manner whatsoever of the title in shares. 27. Strong reliance is placed on Pawan Hans Helicopters v. Aes Aerospace Ltd. 2008 (103) DRJ 174, to contend that the title of the shares has not passed to the defendant. 28. It is further contended that the defendant s averments regarding the conduct of the plaintiff remain to be tested at trial and not at the present stage, especially when there is no documentary proof produced by the defendant to establish payment of purchase consideration to the plaintiff. It is also submitted that in another suit filed by Mr. Bhavik Koladiya, in respect of the transfer of his shares to the defendant, the defendant has given undertaking that he will not, inter alia, deal with the disputed shares in any manner whatsoever during the pendency of that case. It is submitted that the plaintiff is seeking parity with the said order. 29. As regards the various shareholder agreements in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the title of the shares has passed and the delivery of the shares has taken place and that the transfer is complete. Reliance is placed on the following observations in Howrah Trading Company vs. CIT AIR 1959 SC 775: 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 document such as was contemplated by Regulation 18 of Table A of the Indian Companies Act, 1913, or by what are known as ‗blank transfers . In such blank transfers, the name of the transferor is entered, and the transfer deed signed by the transferor is handed over with the share scrip to the transferee, who, if he so chooses, completes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of the share. The company recognises no person except one whose name is on the register of members, upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable. Of course, between the transferor and the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Documentation issued in respect of the transfer of shares to the Defendant; delivery of the shares and the subsequent conduct of the parties 37. It is the plaintiff/applicant s own case in the plaint that it entered into an agreement with the defendant for transfer of 2247 equity shares in RIPL together with all rights attached to them (plaintiff s shares) and to this end, an agreement is stated to have been arrived at between the parties on 02.07.2018. On the same day, the plaintiff admittedly executed a Form SH4 in favour of the defendant in respect of the plaintiff s shares. The said Form SH-4 , as duly executed between the parties has been reproduced hereinabove. A perusal of the same reveals that it clearly sets out the distinctive number of shares, the full name and particulars of the transferor and the transferee and details of the consideration received . The averment made in the plaint to the effect that although in the duly executed Form SH-4 , consideration has been reflected to have been received , even though the plaintiff had not, as a matter of fact, received such consideration, is in utter contradiction to what is expressly recorded in the duly executed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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:- (a) name of the member; address (registered office address in case the member is a body corporate); e-mail address; Permanent Account Number or CIN; Unique Identification Number, if any; Father s/Mother s/Spouse s name; Occupation; Status; Nationality; in case the member is a minor, name of the guardian and the date of birth of the member; name and address of nominee; (b) date of becoming member; (c) date of cessation; (d) amount of guarantee, if any; (e) any other interest if any; and (f) instructions, if any, given by the member with regard to sending of notices etc: 43. It is not the plaintiff s case that the defendant has not been reflected in the register of members maintained by the concerned company in the statutorily prescribed Form MGT-1 for the entire period after July 2018, till date. 44. Further, Rule 8 of the Companies (Management and Administration) Rules, 2014 provides as under:- 8. Authentication.- (1) The entries in the registers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly 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 possession, and, consequently, as they had no contract with Defendants Nos. 2 and 3, they could not sue them for delivery of the shares, whether the Defendants had got good title as against Gora or had not. 49. The said judgment was cited with approval in Commissioner of Income Tax, Delhi (Central) v. M/s. Bharat Nidhi Ltd., (1982) ILR 1 Delhi 64. In that case, the Court was concerned with the issue whether transfer of shares could be effectuated without delivery of the shares and without execution of a share transfer form. It was held in that case that for the purpose of a valid transfer, there must be a valid transfer form, wherein the shares must be specified by serial numbers. The Court noticed the judgement of this Court in Seth R. Dalmia v. The Commissioner of Income Tax- (1971) ILR 1 Delhi 30(4), wherein it was held that even execution of blank transfer form would result in transfer of equitable ownership of the shares, and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to pass. By itself it would be nothing more than an enforceable agreement to convey and until the transfer endorsement is signed the shares would be unascertained goods and would not be in a deliverable state. Vide ( AIR 1941 Madras 769) (3) Kuppiah Chetty v. Saraswathi Ammal. In what circumstances legal ownership or equitable ownership passes to the buyer has been the subject matter of good deal of case law. But we need not dilate on this because almost a similar matter raising these very points has been the subject matter of a decision of this court namely ILR (1971) I Delhi 30 (4), Seth R. Dalmia v. Commissioner of Income-Tax, which was very fairly and properly brought to our notice by the counsel for the assessee, Mr. Bishamber Lal himself. In that case also the sale was again by the present assessee Bharat Nidhi and was on the same terms as in the present case. There also no money was paid at the time of entering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 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 document such as was contemplated by Regulation 18 of Table A of the Indian Companies Act, 1913, or by what are known as ‗blank transfers . In such blank transfers, the name of the transferor is entered, and the transfer deed signed by the transferor is handed over with the share scrip to the transferee,who, if he so chooses, completes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of the share........ 51. Thus, even in the case of a blank transfer form being executed, the transferee is entitled to complete the transfer by entering his name and then applying to the company to register his name in the name of a previous holder of the shares. The present case stands on a much higher footing inasmuch as the transfer of shares has been effectuated by following the rigors prescribed in the Companies Act and the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such a thing is done and the buyer has notice thereof. Likewise, Section 22 carves out another exception and mentions that even when the specific goods are in a deliverable state but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof. 21. Section 23 deals with sale of uncertain goods and appropriation, with which we are not concerned here. Likewise, Section 24 deals with a situation where goods are sent on approval or on sale or return basis, which is also not relevant for our purposes. 22. A conjoint reading of the aforesaid provisions makes it clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. (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 property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. 58. As such, although, payment of price to the seller is a mandatory condition of any contract for sale of goods, a contract for sale of goods and transfer of title can fructify even where the time of payment of price or the time of delivery of goods, or both, is postponed. As such, the statutory provisions repel the contention of the plaintiff that in the present case, nonpayment / postponement of the payment of the price by itself leads to the inference that the contract of sale of shares in the present case did not fructify. 59. Under the statutory framework, for the purpose of passing of title, what is relevant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old 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 application, the contention of the plaintiff is that title in the goods has not passed to the defendant despite the fact that: (i) the shares have been delivered to the Defendant ; (ii) Form SH-4 was duly filled up and executed at the time when the contract was entered into, specifically mentioning details of consideration received and the particulars/ distinctive numbers of the shares; (iii) the recordal of transfer of shares in favour of the Defendant stood completed in July 2018 itself pursuant to a Board resolution passed by the concerned company, which was well within the knowledge of the plaintiff. (iv) the defendant s ownership in respect of the shares has since been reflected in numerous agreements with third parties to which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght 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 may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal. (3) Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange together with the bill of lading or, as the case may be, the railway receipt, to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honour the bill of exchange; and, if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him. Explanation . In this section, the expressions railway and railway admini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. It also provides that unless a different intention appears, the rules contained in Sections 20 to 24 are the 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. Section 20 of the Sale of Goods Act, provides that where there is an unconditional contract for the sale of specific goods in deliverable state, the property in goods passes to the buyer when the contract is made and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndant 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 association with the Plaintiff began on 2 July 2018, when he became a shareholder of the Plaintiff by contributing a paltry sum of INR 31,920 against which he was transferred 3,192 shares in the Plaintiff company. On 5 November 2018, Defendant No. 2 was appointed as a Director of the Plaintiff. On 12 December 2018, he was appointed as the CEO of the Plaintiff pursuant to an Employment Agreement dated 12 December 2018 ( 2018 Employment Agreement ). The 2018 Employment Agreement provides that Defendant No. 2 would be responsible for primarily leading and directing the management of the Plaintiff, with substantial control over its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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