TaxTMI 
TaxTMI 
2023 (12) TMI 790
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....en (2,447) equity shares in Resilient Innovations Private Limited ("RIPL"), which, as a result of a share-split and a bonus share issue, today stand at Twenty Seven Thousand Six Hundred and Twenty Seven (27,627) equity shares (hereinafter, the "plaintiff's shares"), stands rescinded and terminated in accordance with law and contract, and consequently has become void. 2. The plaintiff has further sought a declaration that "Form SH-4", dated 02.07.2028 (hereinafter, 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 sha....
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....structure of the business and to make the structure more investor friendly, the plaintiff and Mr. Bhavik Koladiya, jointly founded and incorporated "RIPL" as a private limited company with an equal shareholding of 5000 equity shares each. M/s EZY Services is stated to have assigned all rights, title and interest, together with goodwill in its brand "BharatPe" to RIPL. It is stated that in May 2018, the defendant was hired as a CEO of RIPL. It is averred in the plaint as follows:- "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 Fort....
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....each unit of security (2) Amount called up per unit of security (3) Amount paid up per unit of security (4) Equity Shares Rs. 10/- 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. 02 Sr. No. Name(s) in full Signature(s) 1. Shashvat Munsukhbhai Nakrani Sd/- I, hereby confirm that the Transferor has signed before me. Signature of witness Name and address Transferee's Particulars:- Name in Full Father's/Mother's/Spouse Name Address & Email Id Occupation E....
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....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 share-split and a bonμs share issue, today stand at Twenty Seven Thousand Six Hundred and Twenty Seven (27,627) equity shares (hereinafter, "our Client's Shares"). For the purpose of fixing consideration under the Agreement, each of our Client's Shares were valued at Rupees Ten (INR 10); thereby making the aggregate consideration payable under the Agreement for our Client's Shares as Rupees Twenty Four Thousand Four Hundred and Seventy (INR 24,470) (hereinafter, the "Purchase Consideration"). Pursuant to the Agreement, our Client performed his obligations in their entirety on 02 July 2018 by executing the necessary forms, namely, Form No.SH-4 (Securities Transfer Form), dated 02 July 2018, to give effect to the transaction in respect of our Client's Shares in your favour, believing in goo....
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.... 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 to them, by RIPL in its records as well as in the records of the appropriate authorities. Our Client is also entitled to all other rights that may get attached with our Client's Shares from time to time. Consequentially, our Client also seeks and demands that you cease and desist from(a) alienating, transferring, selling, creating any encumbrance, third-party rights or any other interest of any kind whatsoever in our Client's Shares, or otherwise dealing with our Client's Shares in any manner whatsoever, (b) exercising any right of any kind whatsoever in respect of our Client's Shares, and (c) wrongly professing, or claiming to be, the owner of our Client's Shares amongst the public at large in any manner whatsoever. Our Client further reserves his right to alternative....
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....ant 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 Plaintiff has come up with this bogus and baseless suit on the ground that the Defendant did not pay the purchase consideration in lieu of the equity shares transferred by him to the Defendant. However, the Plaintiff has failed to attach even one document in the present Plaint wherein the Plaintiff has demanded the payment of the purchase consideration from the Defendant evincing the fact that the purchase consideration had already been paid to the Plaintiff by the Defendant. 14. It is humbly submitted that the entire suit of the Plaintiff falls flat on this ground alone that the purchase consideration had already been paid by the Defendant and now the Plaintiff is perjuring himself by making a clearly false averment that the purchase consideration was ....
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....areholder 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 key operational decisions, subject to the overall supervision of the Board." (Emphasis Supplied)" 14. It is further averred in the written statement that the plaintiff has executed multiple agreements, including agreements where RIPL had raised investments, acknowledging that the subject equity shares stand transferred in favour of the defendant. 15. It is therefore submitted that the plaintiff is estopped from denying the shareholding of the defendant and the binding nature of the agreement dated 02.07.2018. It is emphasized that the plaintiff itself was a signatory to the said agreements. The details of the same are s....
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....nts VI, Redwood Trust, Grace Software Holdings, L.P., Ribbit Cayman in Holdings V, Ltd., Steadview Capital Mauritius Limited, ABG Capital, Coatue pe Asia 27 LLC, Amplo Opportunities I, L.P. and Amplo II, L.P. 10 13^th Feb 2020 Share Subscription Agreement by and amongst Resilient Innovations private limited, Ashneer Grover, Shashvat Mansukhbhai Nakrani, Grace Software Holdings, L.P., Ribbit Cayman in Holdings V, Ltd., Steadview Capital Mauritius Limited, ABG Capital, Coatue pe Asia 27 LLC, Amplo Opportunities I, L.P. and Amplo II, L.P. 11 10^th Feb 2021 Amended and Restated 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., Beenext Accelerate Fund PTE. Ltd., Sci Investments VI, Redwood Trust, Grace Software Holdings, L.P., Ribbit Cayman in Holdings V, Ltd., Steadview Capital Mauritius Limited, ABG Capital, Steadview Capital Opportunities PCC Cell 0121-004, Coatue PE Asia 27 LLC, Coatue PE Asia 46 LLC, Amplo Opportunities I, L.P. and Amplo II, L.P. 12 10^th Feb 2021 Share Subscription Agree....
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....ONS PRIVATE LIMITED IN THEIR MEETING HELD AT REGISTERED OFFICE OF THE COMPANY AT 90/20, MALVIYA NAGAR, NEW DELHI - 110017 ON MONDAY, 2nd DAY OF JULY, 2018 AT 11:00 AM. TRANSFER OF EQUITY SHARES(S) RESOLVED THAT pursuant to applicable provisions of the Articles of Association of the Company, in view of receipt of the duly signed letter of intent to transfer & signed share transfer form of Mr. Shashvat Mansukhbhai Nakrani for effectuating the transfer of 2447 Equity Shares of the Company having a face value of Rs. 10/-, the transfer of 2447 Equity Shares having a face value of Rs. 10/- each in the Company by Mr. Shashvat Mansukhbhai Nakrani to Mr. Ashneer Grover, be and is hereby approved and taken on record. RESOLVED FURTHER THAT the Directors of the Company, be and are hereby severally authorized to take all necessary actions to ensure that the transfer of the above said equity shares of the Company is completed including endorsing the transfer on the original share certificate in favour of Mr. Ashneer Grover." FOR RESILIENT INNOVATIONS PIVATE LIMITED ------------------------- -sd- BHAVIK KOLADIYA DIRCTOR DI....
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....buyer, he may be entitled to recover possession from the buyer under an express term of the contract; or where, before the property in the goods has passed to the buyer, he justifiably terminates the contract on account of the buyer's breach. When the buyer has possession of the goods but not the property in them, he is the bailee of the seller who may be entitled, either under the terms of the contract or under the ordinary law of contract, to determine the bailment and demand the immediate return of the goods, if the buyer commits a breach of his obligations under the contract... ..." 23. It is further contended that this remedy to seek return of goods is otherwise also provided in Section 65 of the Indian Contract Act, 1872 (hereinafter, the "ICA"), which will also apply in view of Section 3 of SOGA which states that the provisions of the ICA will apply, subject to inconsistency with the SOGA. Once a contract, which is voidable at the option of a party, has been rendered void, the consequences under Section 65 of ICA would ensue. 24. It is contended that the property in the plaintiff's shares cannot get transferred to the defendant without payment of the purchase considera....
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....avour of the plaintiff. 31. Per contra, learned counsel for the defendant has also extensively relied upon the various provisions of the Sale of Goods Act, 1930, to contend that a stipulation as to the time of payment is generally not considered a condition essential to the main purpose of the Contract; it is contended that the Sale of Goods Act is replete with Sections wherein the rights of the parties to postpone payment or postpone delivery without the postponement affecting passing of title is recognized. 32. It is submitted that the plaintiff has not been able to demonstrate how a stipulation as to the time of payment of Rs. 24,470/- was essential to the contract. It is further averred that the plaintiff's own legal notice dated 18.03.2023 states that "You have even failed to pay the purchase consideration to our Client within a reasonable period of time after the agreement was entered into". It is contended that this statement itself demonstrates that the plaintiff had agreed to postpone the receipt of consideration and hence the plaintiff's contention that the stipulation with respect to time of payment was a condition essential to the main purpose of the contract, is ....
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....ney in his own hands and fails to pay it to him." Reliance in this regard has also been placed on the judgement of the Supreme Court in CIT vs. Bharat Nidhi Limited 1982 ILR 1 Del 64 and Maneckji Pestanji Bharucha and Anr. vs. Wadilal Sarabhai and Co 1926Vol 94 1.C.824 (PC). 34. It is contended that in the present case as can be seen from the averments in the suit; the contract has been performed in its entirety; the share transfer form namely Form SH-4 has been executed and further the name of the defendant has been entered into the register of shareholders. Hence, it is evident that the title to the shares had passed to the defendant. It is further a settled principle of law specifically in the context of the transfer of shares; where shares have been transferred (in the sense that the title to the shares have passed) and the consideration for such transfer has not been paid; the only remedy available to the seller is that to sue for price. 34. The defendant also relies upon the series of agreements whereby the plaintiff and the defendant sold their shareholding to external investors, in which the defendant has been duly reflected to be a shareholder. It is emphasized th....
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.... (2) In the case of a company not having share capital, provisions of subrule (1) shall apply as if the references therein to securities were references instead to the interest of the members in the company. (3) A company shall not register a transfer of partly paid shares, unless the company has given a notice in Form No. SH-5 to the transferee and the transferee has given no objection to the transfer within two weeks from the date of receipt of the notice." 39. Thus, the information which is incorporated in "Form SH-4" is statutorily mandated; there is also a statutory presumption that the correct information has been mentioned. 40. It is also relevant to note that under Section 88 of the Companies Act, 2013 read with the Companies (Management and Administration) Rules, 2014, companies are obliged to maintain a register of members for each class of equity shares. Under Rule 5(1) of the Companies (Management and Administration) Rules, 2014, the entries in the registers maintained under Section 88 of the Companies Act shall be made within 07 days after the Board of Directors or its duly constituted committee approves the allotment or transfer of shares/debentur....
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....ntry." 45. Thus, any entry in the register of shareholders of a company is statutorily required to be authenticated in the manner prescribed in the aforesaid rule. There is a statutory presumption that such authentication was carried out in the present case, during which process, there is no plea of any doubt being expressed or any objection being raised by the plaintiff or any other person as to the inclusion of the defendant in the register of members of the concerned company. 46. Thus, 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. 47. The law....
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....s transferred to the buyer at such time as the parties to the contract intend it to be transferred; and for the purpose of ascertaining the intention of the parties to the contract regard shall be had to the conduct of the parties. Sub-section (2) of Section 19 elaborates that the rules in Sections 20 to 24 are to be looked at 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 21 provides that where there is a contract for the 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 unless such thing is done and the buyer has notice thereof. The Tribunal has however, not referred to Section 21 because according to it Section 20 which provides that if there is an unconditional contract for the sale of specific goods in a 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 time of delivery of the goods, is postponed and opined that the mere fact that the payment was not made on 5-2-1948 or that the delivery ....
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....vendor (as in the present case undoubtedly the said shares continued to be registered in the name of the assessee), as there was at least an unconditional contract for sale of the beneficial ownership of the shares. The bench accepted that equitable ownership could pass but held that the equitable ownership shares can be transferred by the owner by signing a blank transfer form and handing over the share scrips to the transferee. The bench observed: "It would, therefore, follow that equitable ownership in shares can be transferred by the owner by signing a blank transfer form and handing over that transfer form alongwith the share scrips to the transferee. So far as the company of which the shares are the subject matter of transfer is concerned, it would not recognise the transferee as the owner of the shares till such time as the transfer is registered and the name of the transferee is entered in its registers as the owner of those shares. It would be only after his name is entered in the registers of the company as owner of the shares that the transferee would acquire legal ownership in the shares." [R. Dalmia's case (supra.)]. In the present case admittedly....
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....ned counsel for the defendant that in respect of these 16 agreements, a sum of nearly Rs. 4500 crores (Rupees Four Thousand Five Hundred Cores) was infused into the company. In addition, the plaintiff was also paid a personal consideration of nearly Rs. 40 crores by various external investors. 53. 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 that the defendant was wrongly portrayed as a shareholder in all these agreements or that the plaintiff was "induced" to sign these agreements. Position under the Sale of Goods Act, 1930 54. The contention on behalf of the plaintiff that the title in the concerned shares never passed to the defendant on account of non-payment of consideration and therefore it is permissible for the plaintiff, at this stage, to "repudiate" the contract for sale of shares, is also liable to be rejected, inasmuch as the same is contrary to the scheme of the Sale of Goods Act, 1930. 55. There is no quarrel with the proposition that title in goods (which include shares) ....
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.... 56. There is also no quarrel with the proposition that a contract of sale of goods involves (i) transfer of property in the goods to the buyer, (ii) payment of price/consideration by the buyer to the seller. Necessarily, these are two ingredients of every contract/agreement for sale of goods. 57. However, the validity or existence of a valid contract for sale of goods is not dispelled merely on account of the fact that time of payment of price or the time of delivery of the goods, is postponed. This is evident from the following provisions of the Sale of Goods Act: "5. Contract of sale how made.- (1) A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed. (2) Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties." ....
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....e of shares and not whether payment or delivery or both have been postponed or not. Once the contract for sale of shares is concluded, the rights of an unpaid seller are circumscribed under Section 46 of the Sale of Goods Act, which provides as under:- "46. Unpaid seller's rights.- (1) Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law- (a) a lien on the goods for the price while he is in possession of them; (b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them; (c) a right of re-sale as limited by this Act. (2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer." 62. Section 46 (1)(a) clarifies that an unpaid seller retains a lien on the goods for the price "while he is....
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....our client within a reasonable period of time after the agreement was entered into." As such, the factum of postponement of receipt of sale consideration is admitted. The statutory position (as set out hereinabove), and also noticed in Arihant Udyog (supra) is clear to the effect that mere postponement of payment of price does not dispel the existence of a valid contract of sale and passing of title thereunder. At best, the plaintiff has a right to sue for the unpaid consideration and/ or claim damages. 66. In Suraj Enterprises v. Official Liquidator of Wood Polymers Ltd. (2005) 1 GCD 661, it has been held as under:- "37... The unpaid seller of goods loses his lien when he delivers the goods and the buyer obtains lawful possession. Hence "when the vendor has given the buyer possession under the contract of sale all his rights in the goods are completely gone; he must recover the price exactly as he would recover any other debt (u), and has no longer any claims on the goods sold superior to those of any other creditor. The delivery and acceptance of possession complete the sale, and give the buyer the absolute unqualified and indefeasible rights of property and possessio....
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.... making the full payment of consideration under the Agreement. This aspect is observed in the said judgment and is reproduced hereunder: "7....At this juncture, it may be relevant to note that clause 7 of the addendum of 24.09.1999 specifically stipulated that the title in the goods would only pass to the purchaser once the full payment of GBP 9,00,000 under the said agreement is received by the vendor upon the delivery of the package FOB Mumbai for shipment to U. K." 69. In that context, it was held as under:- "17...The intendment under the said clause is clear that unless and until the petitioner received the full price for the said goods, the property in them would not pass to the respondent and would continue to vest in the petitioner. In the light of Section 19 of the Sale of Goods Act, 1930, it can be safely concluded, at this stage, that the property was intended to pass only upon the full payment of GBP 9,00,000 by the respondent to the petitioner......." 70. As such, the aforesaid judgment far from supporting the case of the plaintiff, supports the case of the defendant inasmuch as there is nothing whatsoever to indicate that unless and until, the p....
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.... from the demat account of the appellant to the demat account of Registrar to the issue, they were in a deliverable state and, therefore, on allotment of shares to the applicants in the public issue, or in any case on credit of shares in their demat account, the property i.e. ownership rights in the shares stood transferred to the applicants in the public issue. The fact that transfer of money which the applicants in the public issue had already paid alongwith the share application, to the bank account of the appellant took place on 06.01.2006 was wholly irrelevant as far as passing of property in the shares was concerned. The fact that the sale consideration had not been transferred to the bank account of the appellant by 05.01.2006 did not have the effect of postponing the passing of property in the shares to the applicants in the public issue." 72. As such, prima facie, there is no merit in the contention of the plaintiff that the contract for sale of shares did not fructify in the sense contemplated under the Sale of Goods Act, 1930, and/or that title therein did not pass to the defendant. Admission on behalf of the plaintiff in CS(OS) 711/2022 73. Learned counsel for ....