Controlling share transfer in an unlisted company is treated as a share deal, not a sale of the undertaking, under company law.

An agreement for transfer of controlling shares in an unlisted public company is treated as a share transaction, not as a sale of the company's undertaking, so section 293(1)(a) is not attracted merely because control changes hands. A contract to make an inter-corporate investment is not void at the agreement stage simply because the actual investment will require statutory resolution or approval under section 372. The arrangement was also found sufficiently certain, and the presence of refund and interest clauses did not exclude specific performance. Private treaty transfers of shares in unlisted public companies were held outside the mischief targeted by the Securities Contracts (Regulation) Act, 1956.

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Issues: (i) whether the agreement for transfer of controlling shares was prima facie hit by section 293(1)(a) of the Companies Act, 1956 as a sale of the company's undertaking; (ii) whether the agreement was illegal or unenforceable under section 372 of the Companies Act, 1956 because it contemplated inter-corporate investment without prior resolution and approval; (iii) whether the contract was too vague or excluded specific performance because the consideration and remedy on breach were not finally settled; and (iv) whether the agreement was hit by the Securities Contracts (Regulation) Act, 1956.

Issue (i): whether the agreement for transfer of controlling shares was prima facie hit by section 293(1)(a) of the Companies Act, 1956 as a sale of the company's undertaking.

Analysis: The restriction in section 293(1)(a) applies where the board sells, leases, or otherwise disposes of the whole or substantially the whole of the undertaking of the company without general meeting approval. The agreement in question was treated as one for sale of specified shares carrying controlling interest, not as a transfer of the undertaking itself. The references to the food business did not alter the substance of the arrangement, which was a share transaction.

Conclusion: The challenge under section 293(1)(a) failed at the prima facie stage and was against the defendants.

Issue (ii): whether the agreement was illegal or unenforceable under section 372 of the Companies Act, 1956 because it contemplated inter-corporate investment without prior resolution and approval.

Analysis: Section 372 was read as prohibiting actual investment beyond the prescribed limit unless the statutory conditions are satisfied. The agreement was only an agreement to invest and not the investment itself. The absence of a prior resolution or Central Government approval at the agreement stage did not, by itself, render the bargain void or incapable of enforcement.

Conclusion: The objection based on section 372 was rejected and was against the defendants.

Issue (iii): whether the contract was too vague or excluded specific performance because the consideration and remedy on breach were not finally settled.

Analysis: The court found sufficient certainty in the contractual arrangement, especially in light of the subsequent confirmation letter identifying the apportionment of consideration. The clauses dealing with refund of earnest money and interest did not expressly exclude specific performance, and no clause barred the plaintiffs from seeking that relief.

Conclusion: The contract was held, prima facie, not to be vague or excluded from specific performance, and this objection failed against the defendants.

Issue (iv): whether the agreement was hit by the Securities Contracts (Regulation) Act, 1956.

Analysis: The court accepted that the transaction did not answer the statutory definition of a spot delivery contract. However, following the earlier Bombay decisions relied upon, it held that the Act was aimed at regulating market transactions on recognised stock exchanges and was not intended to govern a private treaty for transfer of shares of an unlisted public company. On that view, the agreement was not rendered illegal by the Act.

Conclusion: The objection under the Securities Contracts (Regulation) Act, 1956 failed and was against the defendants.

Final Conclusion: The plaintiffs established a prima facie case and the balance of convenience favoured interim protection, so restraining relief was granted to preserve the contractual position pending further proceedings.

Ratio Decidendi: An agreement for sale of controlling shares in an unlisted public company is not, merely by that reason, a sale of the company's undertaking, and a contract to invest does not become void at the agreement stage solely because statutory approvals for the eventual investment are still to be obtained; private share transfers of unlisted public companies are outside the mischief targeted by the Securities Contracts (Regulation) Act, 1956.

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