Property In Shares Does Not Pass Until Payment Is Made: Delhi HC Grants Interim Injunction In Share Transfer Dispute

In a significant ruling on the transfer of equity shares under dispute, the Delhi High Court has granted an interim injunction favoring the plaintiff in a case involving alleged non-payment of consideration for share transfer. Justice Prateek Jalan observed, “Property in shares does not pass until payment is made,” underscoring the centrality of payment in the transfer of title.

The suit, filed under Order XXXIX Rules 1 and 2 of the Code of Civil Procedure, 1908, centers on a dispute where the plaintiff sought a declaration that a Letter Agreement dated December 3, 2018, for the sale of 1,611 equity shares was void due to non-payment. Additionally, the plaintiff sought to restrain the defendants from transferring or creating any third-party rights over the disputed shares.

The plaintiff alleged that despite transferring the shares to defendant No. 1 under the said agreement, the agreed consideration was never received, thus nullifying the transfer of ownership as per the agreement. The plaintiff also submitted that the share transfer form [Form SH-4] executed was contingent on the receipt of payment, which did not occur.

Defendant No. 1 contested the claim, suggesting that the consideration had been settled through alternative means, including use of property and cash, which were not directly traceable to the share purchase. They argued that these transactions formed part of a broader commercial relationship between the parties.

The court scrutinized various legal points concerning the Sale of Goods Act, 1930. Key issues addressed included whether property in the disputed shares passed to defendant No. 1 without payment and whether the payment terms were intended to be of the essence in the contract.

Justice Jalan highlighted clauses from the Sale of Goods Act which state that property does not pass until conditions under the contract are fulfilled, notably the payment of consideration. The court noted inconsistencies in defendant No. 1’s statements regarding the payment, undermining their credibility and lending weight to the plaintiff’s claim of non-payment.

Decision The court granted an interim injunction against defendant No. 1, preventing any transfer or creation of third-party rights in the disputed shares pending the final resolution of the case. The judgment emphasized that allowing such actions would cause irreparable loss to the plaintiff.

Date of Decision : April 30, 2024.

Bhavik Koladia vs. Ashneer Grover & Anr.