Summary of the case

The title of the case is Dismissal of Title of Share According to Contract. The decision was made

by supreme court, joint bench on 2073/08/13 by judges Omprakash Mishra and Kedar Prasad

Chalise. The plaintiff (appeal) in this case is Ajayaraj Sumargi Parajuli, authorized director of

Mukti Shree Private Limited, Ward No. 16, Kathmandu metropolitan city and the defendant is

Himalayan Spring Water Company Limited, Head Office, Maharajgung, Ward No. 3,

Kathmandu metropolitan city.

According to the appeal of the applicant, along with the share of company, other movable and

immovable property shall also be in the name of applicant. But as per the law, share, debenture

and other assets of a company are not the same thing. Share and debenture can only be used by

those who owns it as their own private property and sell it whereas the movable or immovable

properties which are in the name of company cannot be sold by the shareholders of the company

at their own. Company, Shareholders of a company, Founder, and Director are different

disciplines according to the theory of an association and theory of an independent legal person.

The facts of the case filed by Ajayaraj Sumargi Parajuli are as follows:

i) Share buying and selling agreement was held between the applicant’s company and

the defendant company.

ii) The applicant’s company agreed to purchase the total number of shares and the

industry of Himalayan Spring Water Company.

iii) 15 lakhs of Himlayan Spring Water Company, 1 lakh number of shares is in the name

of Bijaya Malla, 4 lakh number of shares is in the name of defendant Birani Rana, 5

lakh number of shares is in the name of defendant Kedarbhakta Shrestha, and 5 lakh

number of shares is in the name of defendant Krishnabahadur Shrestha.

 iv) Defendants also expressed their agreement regarding transfer of the company’s share
and other assets within the given time limit.
v) During handover, the plaintiff had paid Rs. 2,95,00,00 through bank cheque for the
company’s share and asset among the total amount Rs. 18 crore.

Facts

A share buying and selling agreement was held between applicant’s and defendant company on

14-08-2064 wherein the applicant’s company agreed to buy all the shares and the industry itself.

There were a total of 15 lakh shares. Also, the defendants expressed their assent regarding the

transfer of the company’s shares and assets within a given time limit. As investment, Plaintiff

paid Rs. 2,95,00,000 for the company’s share and asset among the total amount of Rs. 18 Crore.

As per the agreement, the plaintiff was not responsible for the bank debt and duties of the

defendant company until it receives letter of intent. Additionally, as per the agreement the

defendants agreed to fulfil following conditions:

1. To free the shares stopped by the court’s orders

2. To pay the remaining amount in the name of the company to the Nepal Electricity

Authority.

3. To pay loan to the bank and issue letter of intent to free the shares stopped by Rastriya

Banijya Bank

4. To renew the 10-year agreement with National park and Wildlife Conservation

department.

Plaintiff’s Claim
Plaintiff of the case, Ajayaraj Sumargi Parajuli, director of Mukti Shree Private limited claimed

that as per the law if the defendant fails to fulfil the terms of the agreement, then the defendant’s

shares and all movable and immovable property would be transferred in the name of the plaintiff.

But the title was not transferred to plaintiff and instead the plaintiff had to pay the remaining

amount to fulfil the clauses of the agreement. The plaintiff’s claim was:

1. To redeem the amount paid and invested by the plaintiff in the industry

2. Transfer all the assets and shares of the defendant company in the name of the plaintiff

Verdict and Established Principles of the District Court, Appellate Court of Patan and the

Supreme Court:

Decision made by District Court:

 On the basis of the facts and the existing legal provisions relating to the case, the district

court dismissed the case on 2065-03-15 as even though the plaintiff had given 2crores 75

lakhs after concluding the contract on 2064-08-14, there are no legal grounds on which

the plaintiff can claim the amount. 

Decision of Appellate Court, Patan:

 Decision of the District court to dismiss the case on the basis of section 169 of

Companies Act 2063, which has the provision relating to the authorities of the Board of

Directors, is notable. Therefore, the Appellate court ordered both the parties to be present

on the court for the decision of the case. 

  Decided that plaintiff’s claim is not enough on the ground that the plaintiff has not filed

the case by mortgaging an amount other than the advance paid to the defendant as well as

the contract didn’t include provisions relating to compensation. 

 The case was dismissed by the district court on the basis of number 180 of chapter court

management, the decision is void and the appellate court decided that the plaintiff’s claim

is not enough in 2066-11-03.

Decision of the Appellate Court was upheld by the Supreme Court.

Decision of the Supreme Court:

 Claim for the appeal by the plaintiff was not sufficient. Hence, all the documents need to

be submitted after deducting the cost as per the law.

Legal Grounds and Evidences of the Case:

 As per section 104 of the Companies Act 2063, any act done or action taken by or

document signed by at least one director authorized by a company or any person

authorized to act for the company shall be valid and binding for the company. Where any

person does any transaction with a company in good faith, such transaction shall be

binding for the company; and nothing contained in memorandum of association, articles

of association of the company or in any resolution adopted by the general meeting or in

any agreement concluded between the company and its shareholder shall be deemed to
 have made any limitation in or restriction on the authority of the director or the

authorized person to do such transaction.

 Here in this case Mr. Bijaya Malla, the director of the Himlayan Spring had signed the

agreement with the plaintiff’s company, Muktishree. Hence, according to the company

act section 104 (1), the company had to be bind to the agreement. However, while

checking the file it is found that the Himalayan Spring Water Company has not recruited

Bijay Malla and others as representatives of the company. Therefore, the contract made

by them cannot be considered as contract made by the company.

 Secondly, if the company has become insolvent, and the company does not bear liability as per

sections 49 (1) a, b, c, d, e, f, g, h, i, j and 49(2) and (3), the entire property of the company is

gained by the shareholders under share committee of the company as per section 49(4). The

plaintiff mentioned this in their claim, however it is not related to the case, as the company has

not become insolvent.

 According to section 83, Contract Act 2056, in case a contract has been breached under Section

82, the aggrieved party may realize from the party who has broken the contract, the actual loss or

damage suffered by him/her a result of such breach of contract of the loss or damage, which the

contracting parties had anticipated at the time of signing the contract. In case the contract

provides that any specific amount or compensation shall be paid in the event of breach of

contract, the aggrieved party may recover from the other party a reasonable amount not exceeding

that amount. On the basis of which the transfer of rights of share and transfer of title of movable

property can be done through the Office of Company Registrar after the CRO carries out

necessary investigations. But in the case, nothing related to compensation was mentioned in the

agreement.

 The plaintiff claims that according to section 86 of Contract Act 2056, while transferring the title
 of share, mortgage is not necessary if special execution is required. According to section 86 of

Contract Act 2056, In case the cash compensation paid in consideration of the actual loss or

damage suffered by the aggrieved party as a result of breach of contract is not reasonable or

adequate, the aggrieved party may demand the execution of the contract as stipulated specific

performance instead of making a claim for compensation. Not with standing anything contained

in Sub-section (1), no claims for execution of the contract as stipulated specific performance shall

be heard in any of the following circumstances;

(a) In case the amount paid in cash as compensation for breach of contract is adequate;

(b) In case the court cannot supervise whether or not the work to be performed under the contract

has been actually performed;

(c) In case the contract has been signed for providing services relating to personal expertise, skill

or knowledge;

(d) In case the situation is such that the contract cannot be executed as stipulated;

(e) In case the party violating the contract him/herself demands that the contract be executed as

stipulated.

 But the case has not mentioned that the defendant has paid any kind of compensation. Hence, this

makes the plaintiff’s claim invalid.

 According to Section 97(9) of Companies Act 2063, Notwithstanding anything contained

in Sub-section (3), (4), (5) and (6), except in the cases that are so expressly prohibited by

them memorandum of association or articles of association, if all the members of the

board of directors or a sub-committee of directors so consent in writing in regard to any

act or resolution permitted to be done or adopted by the board of directors or such sub-

committee, such act maybe done even without holding a meeting by recording such
 consent in the minute book. This shows that the agreement was done under the consent of

all the directors of the company.

 The Appellate Court, Patan had to send to the District Court as per the provision of

Section 14 (d) of Judicial Administration Act, 2048. Section 14 (d) of Judicial

Administration Act, 2048 mentions that If the subordinate court, body or authority has to

give its decision on some issues and failed to give its decision in other issues involved in

the case, to send back the case file of the case, within a period prescribed for completion

thereof, to the subordinate court, body or authority for its decision on the remaining

questions. However, on the given case, the Appellate Court made a decision without

sending it back to District Court and such decision of appellate court is void.

Analysis of the Verdicts made:

According to Section 169 Subsection 4 Clauses (a), (b), ( c ) of Company Act 2063; it

states that three members shall jointly exercise their jurisdiction and the unanimous opinion of all

the three members or the majority opinion of two members shall be deemed to be the decision of

the Company Board. However, it was found out that this provision was not utilized by the

plaintiff nor the defendants. Rejoinders were given by four shareholders, including one director

of the company whereas the plaintiff company was represented by only one member. Hence, the

decision of the District Court to dismiss the case is fully valid.

 Further on, the Appellate Court of Patan had decided that the plaintiff’s claim is not

enough on the ground that the plaintiff has not filed the case by mortgaging an amount other than

the advance paid to the defendant. Meaning that, the plaintiff had just claimed for the paid

amount and not the mortgaged amount while filing the case initially. There were no details of the

mortgage mentioned and the primary case issue did not revolve around the matter of mortgage.

Hence, the verdict made on the mortgage issue and that the plaintiff’s claim being not enough is

also valid.

However, the plaintiff had claimed that according to Section 83 of Contract Act 2056, if

in case the contract has been breached by any one of the parties involved, then the grieving party

can claim their compensation, and if the amount has been mentioned in the agreement, then they

can receive that amount. If not, then the Office of Company Registrar should carry out necessary

investigations. However, this was not done and the matter of compensation of the already paid

amount by the Plaintiff was also disregarded by the Appellate Court, which we believe, is

invalid. The Appellate Court should have furthered the process of compensation and later on, the

Supreme Court should have, as well.

Section 180 of the Company Act 2063 states that any act done or action taken in

contravention of this Act or the articles of association are considered to be void. Since the

plaintiff had not followed the Company Act 2063 thoroughly, starting from the point that the

agreement was made between the shareholders of the defendant company and the plaintiff

company and claims not enough to prove the plaintiff’s point, the decision of the Appellate court

to consider it a void case is valid.

 The Appellate Court, Patan had to send to the District Court as per the provision of

Section 14 (d) of Judicial Administration Act, 2048. However, on the given case, the Appellate

Court made a decision without sending it back to the District Court and such decision of

appellate court is void. So there is an occurrence of fault by the Appellate Court as well.

The plaintiff had claimed that any act done or action taken by or document signed by at

least one director authorized by a company or any person authorized to act for the company shall

be valid and binding for the company according to Section 104 Subsection 1 of the Company Act

2063. According to the initial facts shared by the plaintiff company, it could have been valid,

since Bijaya Malla was mentioned as the director of Himalayan Spring Water Company. The

district court and Appellate court has not mentioned anything contrary to this. However, when

the case has been passed on to the District Court, the District Court claims that Bijaya Malla,

previously mentioned in the case as the director of the Himalayan Spring Water Company, has

not been appointed as the representative of the company by the company itself. On this basis, it

has turned out quite contradictory to the facts claimed in the case initially. It seems that the case

was not made clear regarding the invalidity of the contract agreement being made as it was found

out that Bijaya Malla was not recruited as the representative of the company. The plaintiff should

have been made clear of this fact, before carrying out the agreement itself, rather than the

decision being made only at last by the Supreme Court.

In addition to this, the plaintiff had claimed to the Supreme Court that the agreement had

been made according to the Contract Act 2056. Section 9 (a) of the same has mentioned the
invalidity and cancellation of the proposal, should the person to whom the proposal has been

offered, not give the consent to carry out the activities according to the proposal. In the

beginning of the case, it was stated that the defendants had agreed to the terms and conditions of

the agreement. However, the rejoinders given by the defendants say otherwise. There seems to

be missing information on this consent as well as the missing stamp of the representative of the

company. Later on, the Supreme Court has said that there are documents missing and hence

decided on the verdict that the plaintiff does not have enough valid claims. Through this

justification, it can be said that the verdict was valid.

Despite of the number of valid verdicts, the verdicts on some claims of the plaintiff are

partially or completely invalid, such as the one of the matter of compensation and the District

Court as well as Appellate Court not actually finding out more about the agreement made

between Himalayan Spring Water Company and Muktishree Private Limited. The agreement

itself was made on faulty grounds where the defendants had not made things clear to the plaintiff

initially itself. The agreement was being made between the shareholders of the Himalayan Spring

Water Company and Muktishree Private Limited. However, the official stamp and logo and the

conclusion of the contract was missing, as stated by the Supreme Court. This cannot mean that

only the Plaintiff is at fault. The Defendants are, as well. Henceforth, the decision made by the

Supreme Court is valid on the ground that the agreement was never made between two

companies, rather, made between shareholders as the defendants and the other company as the

plaintiff. However, it is not valid on the grounds that complete disclosure was not made by the

defendants to the plaintiff in the very beginning. The matter of compensation being void is also

invalid. The plaintiff company here is the aggrieved party in the case of the compensation
required as they had already paid the advance amount agreed upon in exchange for the shares,

but not received it back from the shareholders when the case had progressed on to the Appellate

Court. The shareholders, according to legal grounds established, did not sell or transfer the

shares to the Plaintiff. So, they should not have received the payment, and if they had received it,

then they should have sold the shares to the Plaintiff, which did not happen at all.