Analysis of Delhi H.C judgement on BharatPe Share Transfer Case

SHASHVAT NAKRANI - Plaintiff V.S ASHNEER GROVER – Defendant

?

Defendant had purchased 2447 equity shares of Resilient Innovations Private Limited from Plaintiff by way of oral agreement and the consideration was paid into the CASH on 2nd July, 2018. On 18th March, 2023 plaintiff issued ‘Rescission and Termination Notice’ for cancellation of Share Transfer Deed i.e SH-4 due to non-payment of consideration amount for transfer of shares and approached Hon’ble Delhi H.C.?

?

Arguments of Plaintiff

?

The title in the goods i.e 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 to contend that “payment of price”, like “delivery of goods” is a statutory condition of any contract of sale.

?

Arguments of Defendant

?

The arguments made by Plaintiff of non-receipt of consideration is bogus and baseless. The consideration amount was already paid to the Plaintiff by way of cash. The transaction in question conforms to Section 20 of the Sale of Goods Act and the property in the concerned goods i.e shares stood transferred to the Defendant in as much as the contract in question was (i) an unconditional contract (ii) in respect of specific goods; (iii) the said goods were in a deliverable state. The counsel of the Defendant also argued that between 2018 to 2021 years, there were 16 investment agreements were executed where Defendant was shown as a Shareholder and made signatory, the approval of said share transfer was recorded in the minutes of the board meetings and his name was included in the register of members of the Company.

??

Judgement

?

The Hon’ble Delhi H.C noted the following important things:

?

Form SH-4 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 SH4”, 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 “Form SH-4”. Court held that Register of Members maintained by the Company also shows defendant as a shareholder.

?

Under the statutory framework, for the purpose of passing of title, what is relevant is whether the contract for sale of goods has been concluded, and it is immaterial whether the time of payment of price or the time of delivery of goods or both is postponed. Section 46 (1)(a) clarifies that an unpaid seller retains a lien on the goods for the price “while he is in possession of them”. Admittedly, the Plaintiff in the present case is no longer in the possession of the shares, the same having been delivered to the defendant pursuant to execution of “Form SH-4”.

?

Hence, the court refused to grant any injunction order in favor of Plaintiff, as prayed for.

??

Things to learn from this case law:

• Always pay consideration money on whether issue of shares or transfer of shares through ordinary banking channels and not by cash.
• Always do have written Share Transfer Agreement in addition to the Share Transfer Deed in case of deferred payment of consideration.
• In case of deferred payments, a noting in this regard, must be made in form SH-4 in consideration column.
• Professionals should also check bank statements before recording such share transfer in minutes, register of members and the annual return.
• Secretarial records like minutes, registers, e-forms etc. plays crucial role while there is any litigation and hence, it needs to be carefully recorded, updated and filled from time to time.