Prima facie illegality in share-purchase agreements can bar specific performance and related interim injunctions.

A share-purchase agreement was treated as prima facie unenforceable where the proposed acquisition appeared to exceed the statutory ceiling under the Companies Act, 1956 and no sufficient material showed the required corporate or Central Government approvals. The arrangement also did not appear to be a spot delivery contract, so it was prima facie vulnerable under the Securities Contracts (Regulation) Act, 1956. A further interim injunction affecting the company's constitution, management and assets was refused because the company was not a party to the agreement, disputed factual issues required trial, and the balance of convenience did not justify intrusive equitable relief.

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Issues: (i) whether the agreement for sale of shares was prima facie unenforceable for contravention of the statutory restrictions under the Companies Act, 1956 and the Securities Contracts (Regulation) Act, 1956; (ii) whether a further interim injunction restraining acts concerning the constitution and management of the company should be granted in aid of specific performance.

Issue (i): whether the agreement for sale of shares was prima facie unenforceable for contravention of the statutory restrictions under the Companies Act, 1956 and the Securities Contracts (Regulation) Act, 1956.

Analysis: The agreement contemplated purchase of 8,100 shares, which on the materials then available appeared to exceed the statutory ceiling under section 372 of the Companies Act, 1956. No sufficient material showed that the requisite corporate approval and Central Government approval had been obtained. The agreement also did not, on its terms, provide for actual delivery and payment on the same day or the next day, so it was prima facie not a spot delivery contract. In the absence of Central Government permission, the arrangement was prima facie hit by the prohibition under the Securities Contracts (Regulation) Act, 1956, and the contesting respondents had established a serious prima facie objection to specific enforcement.

Conclusion: The agreement was prima facie liable to be treated as illegal or unenforceable, against the appellant.

Issue (ii): whether a further interim injunction restraining acts concerning the constitution and management of the company should be granted in aid of specific performance.

Analysis: The company was not a party to the agreement, yet the proposed injunction would directly affect its management, constitution and assets. The shareholding position, alleged benami holdings, authority of the signatory for respondent no. 6, and part performance were all disputed questions of fact not fit for final resolution on affidavit. The relief sought was wide, discretionary and equitable, and the balance of convenience was not in favour of granting an order that would interfere with company affairs pending trial.

Conclusion: The requested interim injunction was refused, against the appellant.

Final Conclusion: The application for interim relief failed because the agreement raised serious prima facie statutory objections and the proposed injunction would impermissibly intrude into the management of a company not bound by the contract.

Ratio Decidendi: Where a share-purchase agreement prima facie violates mandatory statutory restrictions and the interim relief sought would affect the internal management of a non-party company, a court will decline discretionary injunction relief pending trial.

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