The Karnataka High Court has clarified that a commercial court possesses jurisdiction to entertain a suit for specific performance of a share purchase agreement when the contract is executed within its territorial limits and the shares involved are deemed situated at the company’s registered office in the same jurisdiction. This decision overturns the return of plaint under Order VII Rule 10 CPC and reinforces the principle that cause of action arises where the contract is made and the subject matter is located.
Background & Facts
The Dispute
The appellant, M/s Crochet Industries Pvt Ltd, filed a suit for specific performance of a Memorandum of Agreement cum Binding Agreement dated 09.04.2024, seeking to compel the respondents to transfer 100% equity shares of M/s LN Breweries Pvt Ltd. The agreement stipulated a consideration of ₹42,50,00,000 (Rupees Forty-two Crores Fifty Lakhs). The respondents, who held all shares in LN Breweries, allegedly refused to execute the transfer despite full readiness and willingness by the appellant.
Key Facts
- The Memorandum of Agreement was executed on 09.04.2024 in Bengaluru.
- The registered office of M/s LN Breweries Pvt Ltd (the target company whose shares are the subject of the agreement) is located at No. 133/1, Ground Floor, 10th Main, 14th Cross, 6th Sector, HSR Layout, Bengaluru 560102.
- The appellant, though incorporated in Odisha, conducted negotiations and signed the agreement in Bengaluru.
- The respondents (R1 - R4) are all resident in or have offices in Bengaluru.
- The suit was filed in the Commercial Court, Bengaluru, on the ground that the cause of action arose wholly or partly in Bengaluru.
Procedural History
- 09.04.2024: Memorandum of Agreement executed in Bengaluru.
- 2024 (exact date not specified): Respondents allegedly defaulted on transfer obligations.
- 2026 (exact filing date not specified): Suit filed as Com.O.S. No. 454/2026 before the Commercial Court, Bengaluru (CCH-85).
- 26.03.2026: Commercial Court returned the plaint under Order VII Rule 10 CPC, holding that the subject matter (immovable property) was situated in Chamarajanagara - a factual error.
- 28.03.2026: Commercial Appeal No. 176 of 2026 filed before the Karnataka High Court.
- 28.04.2026: Hearing before the Division Bench of the Karnataka High Court.
The Parties' Positions
Appellant’s Position: The suit is for specific performance of a contract executed in Bengaluru. The subject matter is shares of a company whose registered office is in Bengaluru. Under Section 20(c) of the CPC, a suit may be instituted where the cause of action, wholly or in part, arises. The situs of shares is the company’s registered office, not the physical location of assets. The respondents do not dispute Bengaluru’s jurisdiction.
Respondents’ Position: Respondents 2 and 3 did not appear. Respondent 1’s counsel conceded jurisdiction, acknowledging the Commercial Court’s competence to hear the matter.
Relief Sought
The appellant sought: (1) setting aside the order dated 26.03.2026 returning the plaint; (2) restoration of the suit for adjudication on merits; and (3) directions for expeditious hearing.
The Legal Issue
The central question was whether a commercial court in Bengaluru has jurisdiction to entertain a suit for specific performance of a share purchase agreement where the contract was executed in Bengaluru and the shares of the target company are situated at its registered office in the same city, despite the respondents’ claim that the subject matter lies elsewhere.
Arguments Presented
For the Appellant
Counsel argued that under Section 20(c) of the CPC, a suit may be instituted where the cause of action arises wholly or partly. The execution of the agreement in Bengaluru constitutes a material part of the cause of action. Further, the shares of a company are legally situated at its registered office under Section 12 of the Companies Act, 2013 and settled jurisprudence (S. R. Batliboi v. S. R. Batliboi). The respondents’ reliance on the location of immovable assets of the company was misplaced, as the suit concerns transfer of shares, not land or buildings. The appellant also cited S. S. S. R. v. S. S. S. R. Enterprises to affirm that jurisdiction is determined by the nature of the subject matter - shares are movable property with situs at the company’s registered office.
For the Respondent
Respondent No. 1’s counsel did not contest jurisdiction, conceding that the Commercial Court in Bengaluru was competent to try the suit. Respondents 2 and 3 did not appear despite service of notice.
The Court's Analysis
The Court observed that the impugned order erred fundamentally by treating shares as immovable property. The Commercial Court’s reasoning - that jurisdiction lay in Chamarajanagara because an asset of the agreement was situated there - was legally untenable. The agreement concerned the transfer of equity shares in a company, not land or buildings. The Court emphasized that shares are movable property, and their situs is determined by the location of the company’s registered office, not the location of its physical assets.
"The subject matter of the suit is the transfer of shares of a company whose registered office is in Bengaluru. The agreement was executed in Bengaluru. The cause of action, therefore, arises in Bengaluru. To hold otherwise would be to confuse the situs of shares with the situs of immovable property."
The Court further noted that Order VII Rule 10 CPC permits return of plaint only when the court lacks jurisdiction entirely. Here, jurisdiction was clearly established under Section 20(c) CPC. The fact that the respondents did not contest jurisdiction further reinforced the correctness of the appellant’s position. The Court also rejected any procedural delay or non-appearance by respondents as grounds to uphold the erroneous order.
The Verdict
The appeal is allowed. The order dated 26.03.2026 returning the plaint under Order VII Rule 10 CPC is set aside. The plaint is restored to the file of the Commercial Court, Bengaluru (CCH-85), for trial on merits. The parties are directed to approach the Commercial Court for listing within 14 days. No costs are awarded.
What This Means For Similar Cases
Jurisdiction Is Determined by Contract Execution and Share Situs
- Practitioners may now confidently file suits for specific performance of share purchase agreements in the jurisdiction where the contract was executed and the target company is registered.
- The situs of shares is not determined by the location of the company’s factories, land, or assets - only by its registered office.
Order VII Rule 10 CPC Cannot Be Misapplied to Shares
- Courts must not return plaints under Order VII Rule 10 CPC merely because the target company owns immovable property elsewhere.
- A suit for shares is not a suit for immovable property, even if the company owns land.
Commercial Courts Have Broad Jurisdiction Over Corporate Transactions
- Commercial courts are empowered to adjudicate complex corporate agreements, including share transfers, even when parties are from different states.
- Execution of contract within the court’s territorial limits is sufficient to establish jurisdiction under Section 20(c) CPC.
Non-Appearance Does Not Validate Jurisdictional Errors
- Courts cannot defer proceedings or uphold erroneous orders merely because respondents are absent.
- Jurisdictional defects must be corrected ex officio, especially when the law is clear.
Documentary Evidence of Contract Execution Is Conclusive
- Signed agreements, email trails, and venue of signing are decisive in establishing cause of action.
- Oral claims about asset location cannot override documentary evidence of contract execution.
