the question of enforceability of share transfer restrictions in Indian
companies has been a vexed one. Although the Bombay High Court has sought to
bring about some resolution of the issues in its leading judgments of Messer Holdings v. Shyam
Madanmohan Ruia and Bajaj Auto Ltd. v. Western
Maharashtra Development Corporation Ltd., and Parliament has sought to
clarify the position in the proviso to section 58(2) of the Companies Act,
2013, several ambiguities continue.
clarity from the Supreme Court in the appeal that was preferred from the Messer Holdings judgment of the Bombay
High Court. A couple of weeks ago, the Supreme Court delivered its judgment in Messer
Holdings Ltd. v. Shyam Madanmohan Ruia. However, not only did it refuse
to answer the questions of law posed before it, but it also criticized the
parties for unreasonably taking up valuable time of the court. Hence, no
further guidance has come forth from the Supreme Court on the question of the
validity and enforceability of share transfer restrictions in Indian companies.
from four separate suits preferred by the parties, all relating to a series of
transactions involving restrictions on transfer of shares. The detailed facts
of the case are not entirely relevant for the discussion in the present post.
One suit stood withdrawn. Certain others were affected by a settlement
agreement subsequently entered into between the relevant parties. The Supreme Court
found that no dispute survives on the transfer restrictions in view of the
settlement agreement between the parties, and hence the suits are to be
dismissed without any cause of action. Consequently, all interim orders passed
by various courts in earlier proceedings also lapse.
that we are not deciding by this order, the existence or otherwise of any right
or its enforceability in the … shares of [the company] …. It is open to them to
establish their right in [the suit]. The defendants in the [suit] are at
liberty to raise every defence available in law and fact to them.
effort was made both by [the parties] to convince the court that in view of the
protracted litigation between the parties this court should examine all the
questions of rights, title and interest in these shares between the various
parties as if this were the court of first instance trying these various suits.
all the litigation is this. For the last 18 years, the litigation is going on.
Considerable judicial time of this country is spent on this litigation. The
conduct of none of the parties to this litigation is wholesome. The instant [special
leave petitions] arise out of various interlocutory proceedings. … We believe
that it is only the parties who are to be blamed for the state of affairs. This
case, in our view, is a classic example of the abuse of the judicial process by
unscrupulous litigants with money power, all in the name of legal rights by
resorting to halftruths, misleading representations and suppression of facts.
Each and every party is guilty of one or the other of the above-mentioned
misconducts. It can be demonstrated (by a more elaborate explanation but we
believe the facts narrated so far would be sufficient to indicate) but we do
not wish to waste any more time in these matters.
also serve as proof of the abuse of the discretionary Jurisdiction of this
Court under Article 136 by the rich and powerful in the name of a ‘fight for
justice’ at each and every interlocutory step of a suit. Enormous amount of
judicial time of this Court and two High Courts was spent on this litigation.
Most of it is avoidable and could have been well spent on more deserving cases.
it appropriate to impose exemplary costs quantified at Rs.25,00,000.00 (Rupees
Twenty Five Lakhs only) to be paid by each of the three parties … The said
amount is to be paid to National Legal Services Authority as compensation for
the loss of judicial time of this country and the same may be utilized by the
National Legal Services Authority to fund poor litigants to pursue their claims
before this Court in deserving cases.
what effect this would have on the judgment of the Bombay High Court in the Messer Holdings case in so far as its
holdings on the position of law on share transfer restrictions are concerned.
But, since the Bombay High Court adopted a similar approach in the Western Maharashtra Development Corporation case,
the law as set forth in that case will in any event hold good, at least as of