Share Purchase Agreements Not Commercial Disputes Merely Due To Share Transfer: Calcutta High Court

The Calcutta High Court on 7 October held that a share purchase agreement does not qualify as a shareholders' agreement under Section 2(1)(c)(xii) of the Commercial Courts Act, 2015, merely because it concerns the transfer of shares. Disputes arising from such agreements cannot be classified as commercial disputes under the provision.

A Division Bench comprising Justices Sabyasachi Bhattacharyya and Sandip Kumar De allowed appeals challenging a Single Judge's order dated 5 March 2021, which transferred a suit filed by Dr Dilip Kumar Ghosh and Kamala Ghosh against Funidea Projects Pvt. Ltd. and another defendant to the Commercial Division. The judges held:

“Thus, the agreements do not come within the mischief of Clause (xii) of Section 2(1)(c) of the CC Act. Accordingly, the learned Single Judge erred in law in construing the disputes raised in the suit, pertaining to the said agreements, to come within the purview of the CC Act and consequentially transferring the suit to the Commercial Division of this Court under Section 15 of the CC Act. Thus, the said transfer cannot be sustained in law.”

The dispute arose from agreements dated 16 May 2012 and 10 April 2013 concerning the transfer of shares in Venkateswar Medicare Pvt. Ltd. and rights relating to its land and building in Salt Lake. In 2015, Dr Ghosh and Kamala Ghosh filed a money suit seeking unpaid consideration. They subsequently filed the present suit seeking cancellation of the agreements on allegations of fraud.

Funidea Projects and the other defendant argued that Order II Rule 2 of the Code of Civil Procedure barred the subsequent suit because the plaintiffs had not sought cancellation of the agreements in the earlier proceedings or obtained leave to do so. They also challenged the suit's classification as a commercial dispute and the High Court's territorial jurisdiction.

The Court held that the agreements constituted share purchase agreements rather than shareholders' agreements because the purchasers were not existing shareholders when they executed the contracts. It also noted that the agreements contemplated the transfer of rights and interests in the company's land and building at Salt Lake, which lay outside the High Court's ordinary original jurisdiction. Therefore, it found a territorial jurisdiction bar under Clause 12 of the Letters Patent.

On the applicability of Order II Rule 2 CPC, the Bench examined the earlier money suit and the subsequent cancellation suit, finding that both arose from substantially the same allegations of fraud concerning the agreements and the transfer of shares to 28 companies.

It held that the plaintiffs could not seek cancellation in a subsequent suit after choosing to enforce the same agreements through a money claim. Further, Order II Rule 2(3) CPC and the doctrine of election barred the subsequent suit, which it also considered vexatious.

Accordingly, the Division Bench of the High Court allowed both appeals, set aside the order transferring the suit to the Commercial Division and rejected the plaint under Order II Rule 2(3) CPC.

For Appellants: Senior Advocate Suman Dutt, Advocates Nilanjana Adhya, Subhransu Ganguly

For Respondents: Senior Advocate Aniruddha Mitra, Advocates Dipika Banu, Subhadip Chakraborty, Samriddha Sen, Shounak Mukhopadhyay