Bhavik Koladia Vs. Ashneer Grover and Anr.

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(2024) ibclaw.in 391 HC

IN THE HIGH COURT OF DELHI

Bhavik Koladia

Ashneer Grover and Anr.

CS (COMM) 28/2023

Decided on 30-Apr-24

Coram: Mr. Justice Prateek Jalan

Add. Info:

For Appellant(s): Mr. Gaurav Pachnanda, Senior Advocate with Mr. Sidhant Goel, Mr. Deepankar

Mishra, Ms. Anvi Sharma & Mr. Aditya Maheshwari, Advocates.

For Respondent(s): Mr. Giriraj Subramanium, Ms. Veda Singh, Mr. Simarpal Singh Sawhney, Mr. Joy

Banerjee, Mr. Akhilesh T., Mr. Siddhant Juyal, Ms. Urvashi Singh, Mr. Ravi Pathak, Advocates for

D-1. Mr. Sourabh Rath, Advocate for D2.

Judgment:

J U D G M E N T

I.A. 897/2023 (Application under Order XXXIX Rule 1 and 2 of the CPC)

1. The plaintiff has filed the abovementioned suit for a declaration that a Letter Agreement dated

03.12.20218, for sale of shares of defendant No. 2 – company by the plaintiff to defendant No. 1

[“the Agreement”], has become void, and for cancellation of the share transfer form [“Form SH-4”]

dated 03.12.2018 executed by him pursuant to the Agreement. Plaintiff also seeks a declaration that

he continues to be the owner of the shares in question and an injunction restraining defendant No. 1

from creating any third-party interest in the said shares or exercising any rights therein. By way of

this judgment, I propose to dispose of I.A. 897/2023, filed under Order XXXIX Rule 1 and 2 of the

Code of Civil Procedure, 1908 [“CPC”], whereby the plaintiff seeks an interim injunction restraining

defendant No. 1 from alienating or transferring or creating any third-party rights in the shares or

exercising any rights therein or claiming ownership thereof, and an injunction directing defendant

No. 2 to reflect the plaintiff as the legal and beneficial owner of the shares in question in its register

of members.

A. Facts as pleaded by the parties.

2. The factual details set out in the plaint, so far as they are relevant for the disposal of the present

application, are as follows:-

a. The plaintiff, alongwith one Mr. Shashwat Nakrani were partners of a partnership firm – M/s

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EZY Services, which developed a payment platform under the trademark “BharatPe” in 2016.

They incorporated defendant No. 2 – company on 20.03.2018 as a private limited company

with 10,000 equity shares. The plaintiff and Mr. Nakrani each held 5,000 shares. The BharatPe

platform was transferred to defendant No. 2 by the erstwhile partnership firm under an

assignment deed dated 10.08.2018.

b. In May 2018, defendant No. 1 was employed as Chief Executive Officer [“CEO”] of

defendant No. 2 – company. He was also given the title of “Co-Founder” and was offered

31.9% shareholding in the company.

c. The shareholding was transferred to him by the plaintiff and Mr. Nakrani to the extent of

745 shares and 2447 shares respectively. In both transactions, the consideration was fixed at

Rs.10 per share.

d. The parties were thereafter engaged in raising funds for defendant No. 2, including from

foreign investors. However, defendant No. 1 informed the plaintiff that there was an

impediment in raising funds from investors in the United States of America because the

plaintiff had been prosecuted in the United States of America in the year 2013. Although

eighteen of the nineteen charges were dismissed, and the last was the subject matter of plea

agreement, the plaintiff agreed to transfer his shares in defendant No.2 – company to

defendant No. 1 and Mr. Nakrani, so as to obviate the concerns of any potential investors.

According to the plaintiff, it was the common understanding and intention of the parties that

the plaintiff’s interest in the company would be protected by way of other contractual

arrangements, including a call option to ensure that the plaintiff’s shares could be

retransferred to him in future.

e. Plaintiff and defendant No.1 entered into the Agreement dated 03.12.2018 for the sale of

1,611 equity shares of the company by the plaintiff to defendant No. 1 [“the Suit Shares”],

together with all rights attached, at a consideration of Rs.5,500 per share [wrongly mentioned

in the Agreement as Rs.31,516/- per share]. A similar agreement was entered into between the

plaintiff and Mr. Nakrani for transfer of 1,289 shares of the company from the plaintiff to Mr.

Nakrani.

f. According to the plaintiff, transfer of title in the shares was, in terms of the Agreement, to be

simultaneous with payment of consideration by defendant No. 1 to the plaintiff.

g. The plaintiff, defendant No. 1 and Mr. Nakrani also entered into a “Call Option Agreement”

dated 12.12.2018 which gave the plaintiff a right to repurchase a proportion of the shares on

the terms and conditions mentioned therein.

h. The plaintiff performed his obligations under the Agreement on 03.12.2018, including by

execution of Form SH-4 in favour of defendant No. 1. He also resigned from directorship of the

company, but continued to provide services to the company under a Consultancy Service

Agreement dated 01.12.2018, which continued in force until 31.07.2022.

i. The name of defendant No. 1 has been recorded in the share transfer register and register of

members of the company, in respect of the Suit Shares.

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j. Despite the passage of four years since the execution of the Agreement, defendant No. 1 has

not paid the purchase consideration for the Suit Shares to the plaintiff.

k. The plaintiff therefore claims a declaration that the Agreement and Form SH-4 executed by

him stand rescinded and that he continues to be the owner of the Suit Shares, alongwith

certain consequential reliefs. The Suit Shares have since been sub-divided into 10 shares each

i.e. the shares now comprise of 16,110 equity shares.

l. The appointment of defendant No. 1 as Co-Founder and Managing Director of defendant No.

2 ceased in March, 2022. According to the plaintiff, defendant No. 1 has around the same time

publicly asserted ownership of the Suit Shares, including in press interviews and in a book

authored by him titled “Doglapan” published in December, 2022.

m. The plaintiff sought return of the Suit Shares by an email dated 24.03.2022 addressed to

defendant No. 1, to which he did not receive a response. He has thereafter rescinded and

terminated the Agreement by notice dated 14.01.2023.

3. A written statement has been filed by defendant No. 1. Although the veracity of the Agreement

relied upon by the plaintiff

has been denied in the written statement, Mr. Giriraj Subramanium,

learned counsel for defendant No. 1, stated that, for the purposes of the present application, the

Court may proceed on the basis of the Agreement dated 03.12.2018, placed on record by the

plaintiff. With this qualification, the relevant contents of the written statement filed by defendant

No. 1 may be summarised as follows:-

a. Defendant No. 1 became a 34% shareholder in defendant No.2 – company sometime after

June 2018.

b. Due to the plaintiff’s prior criminal antecedents in the United States of America, he was

required to terminate his relationship with defendant No.2 – company at the time of seeking

investment. He was to enter into two separate agreements with regard to sale of his shares,

one with defendant No. 1 and Mr. Nakrani, and the other with the potential investors. The

Agreement was entered into as part of this arrangement.

c. The consideration for the amount payable under the Agreement was in fact paid. The

understanding between the plaintiff and defendant No. 1, who shared a “multi-faceted

commercial relation with each other”, was that defendant No. 1 would reimburse the plaintiff

towards the value of the shares “as and when able”.

d. Nonetheless, the value of the Suit Shares was, in fact, reimbursed by the plaintiff having use

of a furnished residence of defendant No. 1 from October 2019 to October 2021 without

payment of rent or deposit. It is urged that consideration of Rs.12,00,000/- was thus passed on

to the plaintiff as foregone rent.

e. On 21.04.2020, defendant No. 1 paid Rs.10,00,000/- to the plaintiff in cash, which “was a

part consideration in cash which was towards the commercial relationship” between them.

f. The consideration for the Suit Shares was part of a sum of Rs.8,00,00,000/- remitted by the

wife of defendant No. 1 to the plaintiff’s wife. The transaction was structured in this manner,

and shown as a loan at the request of the plaintiff. In any event, the consideration for the Suit

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Shares would be covered by the interest foregone upon the aforesaid loan amount.

4. The contents of the plaintiff’s application under Order XXXIX Rule 1 and 2 of the CPC and the

reply of defendant No. 1 thereto are along the same lines.

B. Relevant clauses of the Agreement and Form SH-4.

5. Before recording the submissions of learned counsel for the parties, the relevant clauses of the

Agreement, relied upon by them, are set out below:-

“1. This letter agreement (“Letter Agreement”) is with reference to discussions and agreement

amongst Mr. Bhavik Koladiya, resident of 3B, Sidsar Road, Kaminiya Nagar, Adhewada

Bhavnagar, Takhteshwar, Gujarat 364002 holding PAN FRLPK4175F (“Seller”) and Mr.

Ashneer Grover, resident of B1/36, Second Floor, Tikona Park, Malviya Nagar,South Delhi,

Delhi-110017, holding PAN AJZPG0291K (“Purchaser”) relating to the sale and purchase of

1611 (one thousand six hundred eleven) equity shares (“Sale Shares”) of Resilient Innovations

Private Limited (“Company”) having a face value of INR 10/- each by the Purchaser from the

Seller.

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3. Pursuant to the terms of this Letter Agreement, the Purchaser hereby agrees to

purchase from the Seller, and the Seller agrees to sell to the Purchaser, the Sale

Shares at a consideration of INR 31,516 (Rupees thirty one thousand five hundred sixteen) per

Sale Share, being an aggregate amount of INR 88,60,500 (Rupees eighty eight lacs sixty

thousand five hundred) (“Purchase Consideration”).

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5. On a date mutually agreed between the Purchaser and Seller (“Closing Date”), the

following actions shall be consummated simultaneously:

(a) The Seller shall:

(i) deliver to the Purchaser duly executed share transfer forms in respect of the

Sale Shares in favour of the Purchaser;

(ii) deliver to the Purchaser the original share certificates in respect of the Sale

Shares.

(b) The Purchaser shall:

(i) remit the Purchase Consideration to the following bank account of the

Seller:

Account Holder: Mr. Bhavik Koladiya

Bank Name: Yest Bank Limited

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Branch: Silver Arc Building, Plot

No. 9, Waghawadi Road,

Bhavnagar, Gujarat- 364001

IFSC Code: YESB0000064

(ii) procure payment of stamp duty in respect of, and lodge with the Company, the

duly executed share transfer form for the Sale Shares, along with original share

certificates received from the Seller.

(i) convene a meeting of the Board to approve the following:

(A) take on record the transfer of Sale Shares by the Seller to the Purchaser,

and authorize the endorsement of the share certificates in respect of the

Sale Shares to reflect the Purchaser as the owner thereof, and update the

(B) update the register of members to register the Purchaser as the legal and

beneficial owner of the Sale Shares.

(ii) deliver to the Purchaser original share certificates in relation to the Sale

Shares, duly endorsed by the Company, to reflect the Purchaser as the owner of

the Sale Shares.

6. The Seller hereby represents and warrants to the Purchaser that each representation and

warranty below is true, correct, valid and subsisting in every respect, as of the date hereof,

and shall remain true, correct, valid and subsisting on the Closing Date (as if such

warranties have been made as on and as of such date) (“Seller Warranties”)

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each fully paid.

(d) The Seller has the right to transfer to the Purchaser full legal and beneficial

interest in such Sale Shares together with all rights and benefits attached thereto, in

the manner set out in this Letter Agreement.

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(g) The Seller shall be responsible for the payment of any capital gains tax relating to the

sale of the Sale Shares hereunder and the Purchaser shall have no liability in that behalf

whatsoever.

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7. The Purchaser represents and warrants to the Seller that each representation and warranty

below is true, correct, valid and subsisting in every respect, as of the date hereof, and shall

remain true, correct, valid and subsisting on the Closing Date (as if such warranties

have been made as on and as of such date):

(a)the Purchaser has all necessary power, authority and capacity to enter into, and

undertake the transactions contemplated by, this Letter Agreement;

(b) this Letter Agreement constitutes valid and legally binding obligations on him and is

enforceable against him in accordance with its terms.

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9. This Letter Agreement shall be effective from the date hereof and shall continue to be valid

and in full force and effect, unless it is terminated by the mutual consent of the Seller and

Purchaser.

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11. No modification or amendment of any of the provisions of this Letter Agreement shall be

effective unless made in writing specifically referring to this Letter Agreement and duly signed

by each of the Seller and Purchaser.”

6. Defendant No. 1 also relies upon the Form SH-4 executed by the plaintiff which is reproduced

below:-

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C. Submissions of learned counsel for the parties.

7. Mr. Gaurav Pachnanda, learned Senior Counsel for the plaintiff, relied upon the contents of the

Agreement dated 03.12.2018, particularly Clauses 4, 5 and 6, to submit that property in the Suit

Shares was to pass to defendant No. 1 only upon payment of consideration. He relied upon Sections

4, 12, 19, 32 and 46 of the Sale of Goods Act, 1930 [“SoGA”] to submit that in such circumstances,

the plaintiff retained ownership of the Suit Shares. Mr. Pachnanda cited the judgments of the

Supreme Court in Arihant Udyog vs. State of Rajasthan

and the judgment of a Single Judge of this

Court in Pawan Hans Helicopters Ltd. vs. Aes Aerospace Ltd.

and Benjamin’s Sale of Goods

favour of this contention.

8. Mr. Pachnanda argued that the averments of defendant No. 1 in the written statement itself

demonstrate that the purchase consideration was not paid at the time the Agreement was entered

into. He argued that the inconsistent and contradictory contentions of defendant No. 1 with regard

to the time of payment also belied his contentions in this regard.

9. Mr. Giriraj Subramanium, learned counsel for defendant No.1, on the other hand, submitted that

the facts and circumstances of this case demonstrate that the time for payment of the consideration

stipulated in the Agreement was not of essence to the contract. He drew my attention to Sections 11

and 12 of SoGA to submit that in the absence of a contrary intention, the stipulation as to time is not

to be regarded as of the essence in a contract for sale of goods, and breach thereof would therefore

not give a party a right to treat the contract as repudiated. In the present case, although the

Agreement contains the stipulation as to the time of payment, it does not provide any consequences

for the breach thereof.

10. According to Mr. Subramanium, the attendant circumstances of the present case, including

execution of Form SH-4, which expressly provides that consideration had been received by the

plaintiff, the entry of defendant No. 1’s name on the register of members of defendant No.2 –

company, and the fact that the present suit was not instituted for a period of four years after the

Agreement, all point to the conclusion that parties did not treat time to be of the essence of the

contract.

11. Mr. Subramanium also drew my attention to the contents of the legal notice dated 14.01.2023

sent on behalf of the plaintiff and paragraphs 2.29 and 2.30 of the plaint to submit that the plaintiff’s

own construction of the Agreement was that the payment of the sale consideration did not

necessarily have to be made at the time of the Agreement, but could have been made within a

reasonable period thereafter.

12. He submitted that in such circumstances, Sections 20, 46 and 55 of SoGA provide that property

passed to defendant No. 1 at the time of the Agreement and that the rights of the plaintiff are now

limited to a suit for the price of the Suit Shares. He relied upon the judgment of the Rajasthan High

Court in Pakharsingh vs. Kishansingh

in support of these contentions.

13. Mr. Subramanium also relied upon a judgment of a Coordinate Bench of this Court in a suit

instituted by Mr. Nakrani against defendant No. 1

. He submitted that Mr. Nakrani had asserted an

agreement for sale of shares, which was in similar terms to the agreement in issue in the present

case. The Coordinate Bench however dismissed an application under Order XXXIX Rule 1 and 2 of

the CPC. According to Mr. Subramanium, the facts of the two cases are similar.

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14. Mr. Pachnanda, in rejoinder, submitted that Section 20 of SoGA, relied upon by Mr.

Subramanium, would be inapplicable to the present case as the Agreement itself provided that

property could not pass until the payment of consideration. He submitted, relying upon Section 19 of

SoGA, that Sections 20 to 24 would come into play only if the Court comes to a conclusion that the

Agreement did not express any intention as to when property should pass in the present case. He

drew a distinction between Form SH-4 which constitutes a “document of title to goods” under

Section 2(4) of SoGA and a legal question of when property would pass to the purchaser. For this

purpose, he relied upon the judgment of the Supreme Court in Vasudev Ramchandra Shelat vs.

Pranlal Jayanand Thakar & Ors.

15. Mr. Pachnanda also distinguished the judgment of the Coordinate Bench in Shashvat Nakrani

on the ground that the agreement pleaded in that case was an oral agreement, whereas the intention

of the parties is clearly evident in the present case from a written document. He submitted that

defendant No. 1 in that case had taken an express defence that the consideration amount of

Rs.24,470/- had been paid in cash whereas, in the present case, the contentions of defendant No. 1

in this regard were ambiguous and inconsistent, not deserving of acceptance on a prima facie basis.

D. Analysis.

16. Having regard to the aforesaid contentions of the parties, the key question which requires

determination is whether the plaintiff has made out a prima facie case that he continues to retain

property in the Suit Shares as consideration under the Agreement remained unpaid. Learned

counsel for both parties proceeded on the basis that, if the Court comes to the conclusion that

property in the Suit Shares had passed to defendant No. 1 upon execution of the Agreement and

Form SH-4, the plaintiff’s rights would be limited to recovery of the agreed price. However, if the

Court finds prima facie that property in the Suit Shares had not passed in the absence of

consideration, the plaintiff retained the right to repudiate the transaction and claim the Suit Shares.

17. Learned counsel for the parties relied upon the following provisions of SoGA in support of their

contentions:-

“2. Definitions.—In this Act, unless there is anything repugnant in the subject or context,—

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(4) “document of title goods” includes a bill of lading, dock warrant, warehouse-keeper’s

certificate, wharfingers’ certificate, railway receipt, 5[multimodal transport document,]

warrant of order for the delivery of goods and any other document used in the ordinary course

of business as proof of the possession or control of goods, or authorising or purporting to

authorise, either by endorsement or by delivery, the possessor of the document to transfer or

receive goods thereby represented;

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(7) “goods” means every kind of movable property other than actionable claims and money;

and includes stock and shares, growing crops, grass and things attached to or forming part of

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the land which are agreed to be severed before sale or under the contract of sale;

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4. Sale and agreement to sell.—(1) A contract of sale of goods is a contract whereby the seller

transfers or agrees to transfer the property in goods to the buyer for a price. There may by a

contract of sale between one part-owner and another.

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from the seller to

the buyer, the contract is called a sale, but where the transfer of the property in the goods is

to take place at a future time or subject to some condition thereafter to be fulfilled, the

contract is called an agreement to sell.

(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled

subject to which the property in the goods is to be transferred.

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11. Stipulation as to time.—Unless a different intention appears from the terms of the contract,

stipulations as to time of payment are not deemed to be of the essence of a contract of sale.

Whether any other stipulation as to time is of the essence of the contract or not depends on

the terms of the contract.

12. Condition and warranty.—(1) A stipulation in a contract of sale with reference to goods

which are the subject thereof may be a condition or a warranty.

(2) A condition is a stipulation essential to the main purpose of the contract, the breach of

which gives rise to a right to treat the contract as repudiated.

(3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of

which give rise to a claim for damages but not to a right to reject the goods and treat the

contract as repudiated.

(4) Whether a stipulation in a contract of sale is a condition or a warranty depends in each

case on the construction of the contract. A stipulation may be a condition, though called a

warranty in the contract.

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19. Property passes when intended to pass.—(1) Where there is a contract for the 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.

(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms

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of the contract, the conduct of the parties and the circumstances of the case.

(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 goods, or both, is postponed.

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25. Reservation of right of disposal.—(1) Where there is a contract for the sale of specific

goods or where goods are subsequently appropriated to the contract, the seller may, by the

terms of the contract or appropriation, reserve the right of disposal of the goods until certain

conditions are fulfilled. In such a 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 administration” shall

have the meanings respectively assigned to them under the Indian Railways Act, 1890 (9 of

1890).

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45. “Unpaid seller” defined.—(1) The seller of goods is deemed to be an “unpaid” seller within

the meaning of this Act—

(a) when the whole of the price has not been paid or tendered;

(b) when a bill of exchange or other negotiable instrument has been received as

conditional payment, and the condition on which it was received has not been fulfilled by

reason of the dishonour of the instrument or otherwise.

(2) In this Chapter, the term “seller” includes any person who is in the position of a seller, as,

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for instance, an agent of the seller to whom the bill of lading has been endorsed, or a

consignor or agent who has himself paid, is or directly responsible for, the price.

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;

(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.

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55. Suit for price.—(1) Where under a contract of sale the property in the goods has passed to

the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the

terms of the contract, the seller may sue him for the price of the goods.

(2) Where under a contract of sale the price is payable on a certain day irrespective of delivery

and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the

price although the property in the goods has not passed and the goods have not been

appropriated to the contract.”

18. Looking at the terms of the Agreement in the context of these provisions, I am prima facie of the

view that the parties had agreed that property in the Suit Shares would pass to defendant No. 1 only

upon payment of the sale consideration. The following clauses of the Agreement dated 03.12.2018

support this conclusion:-

a) Clause 3 employs the phrases “hereby agrees to purchase” and “agrees to sell”, which

prima facie indicate that the Agreement was in the nature of an “agreement to sell” under

Section 4(3) of SoGA, rather than a “sale”.

b) Clause 5 refers to a “Closing Date” in the future, and to simultaneous delivery of the share

transfer forms and the share certificates with the remittance of the purchase consideration by

defendant No. 1 to the designated bank account of the plaintiff.

c) Clauses 6 and 7 contain warranties of the parties which are stated to be true on the date of

the Agreement and would remain “true, correct, valid and subsisting on the Closing Date”.

This also indicates a closing date in the future.

d) Clause 6(d) stipulates that the plaintiff had the right, until the closing date, to transfer full

legal and beneficial interest in the Suit Shares to the defendant No. 1. This indicates that, until

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the closing date – which also refers to payment of the sale consideration by defendant No. 1 –

plaintiff retained the legal and beneficial interest in the Suit Shares.

19. On the above basis, I am of the view that plaintiff has made out a prima facie case that property

in the Suit Shares was to be transferred only upon payment by defendant No. 1. As a consequence,

the provisions of Sections 20 to 24 of SoGA would have no application, as they would come into play

only if no contrary intention was evident from the contract. The judgment of the Supreme Court in

Arihant Udyog

in paragraphs 16 to 22, clearly holds that the provisions of Section 20 to 24 of SoGA

would be applicable only if the intention of the parties as to when property in the goods would pass,

cannot be discerned from the contract:-

“22. A conjoint reading of the aforesaid provisions makes it clear that title in goods is

transferred from the seller to the buyer only on the sale of goods. As to when such a sale

fructifies and the property passes is to be ascertained from the intention of the

parties having regard to the terms of the contract. If no such intention can be

gathered from the terms of the contract, the property in goods passes where thegoods

are in a deliverable state and there is unconditional contract for sale of specific

goods.”

20. The judgment of the learned Single Judge of this Court in Pawan Hans

also supports this

conclusion:-

“17. Section 19 of the Sale of Goods Act, 1930 specifically provides that the property

passes when it is intended to pass. Section 19 (1) stipulates that where there is a contract

for the 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. In this context, it would be

pertinent to reiterate that clause 7 of the addendum of 24.09.1999 specifically stipulated that

the title in the goods would only pass to the purchaser (respondent) once the full payment of

GBP 9,00,000 under the said agreement was received by the vendor (petitioner) upon the

delivery of the package FOB Mumbai for shipment to U.K. Admittedly, the petitioner has not

received the agreed price of GBP 9,00,000. 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. That has not happened, therefore, the property has not passed to the

respondent. This being the position, the agreement dated 16.06.1999 alongwith its

addenda would only be regarded as an agreement to sell within the contemplation of

Section 4 (3) of the Sale of Goods Act, 1930 and not as a sale. The agreement to sell

has not matured into a sale inasmuch as the conditions that were required to be

fulfilled, subject to which the property in the goods was to be transferred, have not

been fulfilled. Therefore, in law, no sale has taken place and the parties had only

entered into an agreement to sell.”

21. Mr. Pachnanda also cited the following passage from Benjamin’s Sale of Goods

, which supports

the position that the plaintiff in the present case be ultimately be entitled to recovery of possession

of the shares:

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“4. MISCELLANEOUS REMEDIES

Recovery of possession, or damages for conversion Although the seller may have

delivered the goods to the buyer, he may be entitled to recover possession from the

buyer under an express term of 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

goods, if the buyer commits a breach of his obligations under the contract. The appropriate

remedies are the proprietary ones for chattels under the law of torts, viz. proceedings for

wrongful interference with the goods in which the claimant seeks an order for specific delivery

of the goods, or for damages for conversion when the buyer has dealt with the goods in a

manner which denies the seller’s title to them. Similarly, when the seller retains the property

in goods, he may be entitled, on the basis of his immediate right to possession of the goods, to

bring proceedings for wrongful interference to obtain an order for specific delivery or

damages for conversion against a stranger who wrongfully interferes with the goods while

they are in the possession of the buyer, or who wrongfully detains them after taking them out

of the possession of the buyer. The unpaid seller who is in possession of the goods as a result

of his having exercised his right of lien or of stoppage in transit may bring proceedings for

wrongful interference with the goods against a stranger; and the unpaid seller who is

immediately entitled to possession of the goods by virtue of his having stopped the goods in

transit may bring such proceedings against the carrier or other bailee who fails to comply with

the seller’s instructions, or against a stranger who detains or interferes with the goods.”

22. Mr. Subramanium sought to distinguish the judgment in Pawan Hans

, on the ground that there

was an express clause in that case that title in the goods would not pass until payment was made. He

submitted that the present Agreement contains no such clause. While such an express provision is

indeed missing in the present case, I have not been shown any authority to suggest that such an

intention must be express, or that the provision would be inapplicable even if the intention of the

parties can be gathered from the terms of the Agreement, as in this case.

23. Similarly, I am of the view that Mr. Subramanium’s reliance upon Sections 11 and 12 of SoGA is

misconceived. The question in the present case is not whether the stipulation as to time of payment

was of the essence of the contract, but as to whether the property has passed at all. The provisions

of Section 11 and the judgments relied upon would be of assistance, if the Agreement provided only

for payment of consideration at a particular time, but did not link the payment with the passing of

property. In the present case, the plaintiff’s argument is not predicated upon the stipulated time for

payment of consideration, but upon the interrelationship between the payment and the property

passing. For this reason, the judgment of the Rajasthan High Court in Pakharsingh

, relied upon by

Mr. Subramanium, is also of little assistance. The judgment deals with the question as to whether

time is of the essence to a particular contract. However, the real question to be addressed in the

present case is not about a specific time when payment of the consideration amount ought to have

been made by defendant No.1, but whether property in the Suit Shares passed to him, absent such

payment.

24. The next question, therefore, is whether the sale consideration had in fact been paid by

defendant No.1 to the plaintiff. The most important document relied upon by defendant No.1, in this

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connection, is Form SH- 4, signed by the plaintiff and defendant No.1, on the same day as the

Agreement i.e. 03.12.2018. Mr. Subramanium points out that the document contains the entry of

Rs.88,60,500/- under the column “Consideration received (Rs.)”. As against this, Mr. Pachnanda

submitted that defendant No.1 had not placed any evidence of actual transfer of the amount.

25. At this stage, the Court is required to return only a prima facie finding on this disputed question

of fact. Upon a consideration of the material before the Court at this stage, I am of the view that the

prima facie case is in favour of the plaintiff, i.e. that the consideration was in fact not paid. This is

not only because of a complete lack of any documentary evidence of payment – whether by way of

bank statements or otherwise – but also because the pleadings of defendant No.1 himself are, at

best, ambiguous. There is no pleading whatsoever that payment was in fact made on 03.12.2018, as

recorded in Form SH-4. There is also no pleading that payment was made in terms of the

Agreement, i.e. to the bank account designated in Clause 5(b)(i) of the Agreement

. The pleas taken

by defendant No.1 with regard to payment are also vague and multifarious. As noted above, he has

claimed payment in three ways – in kind [by use of a furnished residence], payment of part

consideration in cash “towards the commercial relationship” between the parties and by way of

interest forgone upon a loan advanced by his wife to the plaintiff’s wife. These alternative and

inconsistent pleas lead me to a prima facie conclusion that they are in fact afterthoughts and

unrelated transactions are being retrospectively explained to cover the consideration amount.

26. Mr. Subramanium sought to stress upon the contents of the legal notice and the plaint to

suggest that the time for payment of the consideration amount was not in fact fixed. He emphasised

that the plaintiff has pleaded non-payment of consideration within a reasonable time after the

signing of the Agreement. I do not consider this to be a relevant consideration, at least at the

interlocutory stage, because of the prima facie finding that consideration has, in fact, not been paid

at any stage, whether simultaneously with the Agreement or subsequently.

27. Mr. Subramanium’s reliance upon the judgment in Shashvat Nakrani

also does not persuade

me to a contrary conclusion. Although the facts are similar at first blush, there are significant

differences which, on a more considered view, tip the scales in favour of the plaintiff. These are as

follows:-

(a) The most significant difference is that there was no written agreement in Shashvat

Nakrani

. The plaintiff’s case, regarding the link between payment of consideration and

passing of property was, therefore, pleaded but not backed up by any document. The Court

therefore noted the execution of Form SH-4 and the statutory consequences and presumptions

which arise as a consequence. There was no document or evidence before the Court to

contradict those presumptions. In contrast, in the present case, the written agreement itself

provides such a basis. The present case, proceeding on the above analysis of the written

agreement, is different in this fundamental respect.

(b) The second significant distinction is that in Shashvat Nakrani

, defendant No.1 had

asserted that the consideration amount of Rs.24,470/- was paid in cash, simultaneously with

the execution of Form SH-4. In the present case, the consideration was of a substantially

higher sum of Rs.88,60,500/-, and there is no such factual assertion. I have also come to a

contrary prima facie finding, with regard to the payment of consideration.

, the Court also proceeded on an

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analysis of the provisions of SoGA, which for the reasons noted above, are inapplicable.

(d) The admissions of Mr. Nakrani, in other suits between the same parties, were also held

against him, whereas no such admissions are relied upon in the case of the plaintiff herein.

28. The injunction sought by the plaintiff, at this stage, is to restrain defendant No.1 from selling or

creating any third-party rights in the Suit Shares or in any rights that have accrued as a

consequence thereof. For the reasons aforesaid, I am of the view that the plaintiff has made out a

prima facie case for grant of such an injunction. Defendant No.2 is a private limited company whose

shares are not traded. The balance of convenience is also, therefore, in favour of an injunction being

granted. I am satisfied that the plaintiff would suffer irreparable loss and prejudice if third-party

rights are created in the Suit Shares claimed by the plaintiff at this stage.

E. Conclusion.

29. Defendant No.1 is therefore restrained from transferring or creating any third-party rights in the

Suit Shares, or any rights accrued or which may accrue to him as a consequence thereof, until the

disposal of the suit.

30. It is made clear that the observations and findings in this judgment have been recorded only for

disposal of this application and are not intended to prejudice the parties at trial.

31. The application stands disposed of.

PRATEEK JALAN, J.

April 30, 2024

References:

1. These shares are not the subject matter of the present suit.

2. The said agreement is not the subject matter of the present suit.

3. For the purposes of the present application, the parties have not advanced arguments on the

basis of the Call Option Agreement.

4. Document No. 1 of the plaintiff’s list of documents.

5. Emphasis supplied.

6. (2017) 8 SCC 220.

7. 2008 (103) DRJ 174.

8. Eleventh edition, Sweet & Maxwell.

9. 1973 SCC OnLine Raj 39.

10. Judgment dated 15.12.2023 in CS(COMM) 166/2023 [Shashvat Nakrani vs. Ashneer Grover].

11. (1974) 2 SCC 323.

12. Supra (note 10).

13. Supra (note 1), paragraphs 16 to 22.

14. Emphasis supplied.

15. Supra (note 2). The judgment of the learned Single Judge was affirmed by the Division Bench by

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a judgment dated 11.08.2008 in FAO(OS) 258/2008 and FAO(OS) 259/2008. The Supreme Court

declined Special Leave to Appeal by order dated 30.01.2009 in SLP(C) 1231/2009.

16. Emphasis supplied.

17. Supra (note 8); paragraph 16-091.

18. Emphasis supplied.

19. Supra (note 7).

20. Supra (note 9).

21. I do not intend to suggest at this stage that remittance of consideration by any other method, if

proved, would still be inadequate to show compliance with the Agreement. That question is left open

for adjudication at trial.

22. Supra (note 10).

23. Ibid.

24. Ibid.

25. Ibid.

Original judgment copy is available here.

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