2003 (11) TMI 356 - HC - Companies Law

Summary

Issues:
1. Transfer of shares in a company without following the procedure outlined in the Articles of Association.
2. Interpretation of Article 7 of the Articles of Association regarding transfer of shares.
3. Rights of existing members to purchase shares when a transfer is set aside by the Company Law Board.
4. Powers of the Company Law Board in directing transfer of shares between members.

Issue 1: Transfer of shares in a company without following the procedure outlined in the Articles of Association.

The petitioners, who were aggrieved by a transfer of shares in a company, filed a petition before the Company Law Board challenging the legality of the transfer and seeking rectification of the register of members. The transfer in question was made by the second respondent company to respondents 3 to 6 without following the prescribed procedures as per the Articles of Association.

Issue 2: Interpretation of Article 7 of the Articles of Association regarding transfer of shares.

The Company Law Board analyzed Article 7 of the Articles of Association, which outlined the procedure for transferring shares in the company. The Board concluded that the transfer of shares was not in accordance with the provisions of Article 7, specifically regarding offering shares to existing members before transferring to outsiders. Consequently, the Board set aside the transfer of shares to respondents 3 to 6.

Issue 3: Rights of existing members to purchase shares when a transfer is set aside by the Company Law Board.

The appellants, who were existing members of the company, contended that they should have the right to purchase the shares that were set aside by the Board. However, the Board held that the appellants did not have an automatic right to purchase the shares unless a notice was issued by the Board offering such a transfer to existing members in accordance with Article 7 of the Articles of Association.

Issue 4: Powers of the Company Law Board in directing transfer of shares between members.

The Company Law Board, in its decision, emphasized that its powers were limited to directing the company to rectify the register of members and pay damages if any party suffered losses. The Board clarified that it did not have the authority to compel a member to transfer shares to another member, as there was no specific provision under the Companies Act granting such power.

In conclusion, the High Court upheld the decision of the Company Law Board, dismissing the appeal and highlighting that the appellants could not compel the second respondent to sell the shares without following the prescribed procedures outlined in the Articles of Association. The Court affirmed that the Board's decision was in line with the legal framework and declined to interfere with the Board's ruling.