2007 (5) TMI 331 - HC - Companies Law

Summary

Issues Involved:
1. Allotment of 4490 shares to the Second Respondent.
2. Transfer of 320 shares to the Third Respondent.

Summary:

Issue 1: Allotment of 4490 shares to the Second Respondent

The Appellant challenged the allotment of 4490 shares to the Second Respondent, arguing it was contrary to the Articles of Association of the First Respondent. Article 8 mandates that all new shares must be offered to existing shareholders before being allotted to outsiders. The CLB found that the allotment of 4490 shares to the Second Respondent, who was not an existing shareholder, violated Article 8 and was thus illegal and void. Consequently, the transfer of 1490 shares from these 4490 shares to the Appellant was also cancelled. The First Respondent was directed to refund Rs. 1,49,000 to the Appellant and was permitted to re-allot the 4490 shares to existing shareholders in accordance with the law. The High Court upheld the CLB's decision, stating that the allotment was "manifestly illegal and void" and the subsequent transfer to the Appellant was also void.

Issue 2: Transfer of 320 shares to the Third Respondent

The Appellant contended that the transfer of 320 shares to the Third Respondent should be governed by Article 23, which requires a transfer notice and the Board acting as an agent for the sale. However, the CLB and the High Court found that Article 22, which allows transfers to existing members or family members without the need for a transfer notice, applied in this case. The Third Respondent was an existing shareholder, and the Board had approved the transfer. Therefore, the transfer was valid under Article 22, and Articles 23 and 25 did not apply. The High Court upheld the CLB's decision, confirming that the transfer of 320 shares to the Third Respondent was valid and correctly executed.

Conclusion:

The appeal was dismissed, affirming the CLB's decisions on both issues. The allotment of 4490 shares to the Second Respondent was void, and the transfer of 320 shares to the Third Respondent was valid.