1959 (6) TMI 10 - HC - Companies Law

Summary

Issues Involved:
1. Breach of Article 9 of the Articles of Association.
2. Entitlement to the remedy sought by the appellants.
3. Interpretation of the term "transfer" within Article 9.
4. Whether the respondents are "desirous of transferring" their shares.
5. The applicability of Article 9 to the respondents' actions.

Detailed Analysis:

1. Breach of Article 9 of the Articles of Association:
The court examined whether Scott's trustees had breached the first or prohibitive part of Article 9. Article 9 restricts the transfer of shares without the consent of the directors and mandates that shares must first be offered to other shareholders. The court concluded that Scott's trustees had indeed breached this part of the article by entering into an agreement to sell their shares to Mr. Fraser without following the prescribed procedure.

2. Entitlement to the Remedy Sought by the Appellants:
The appellants sought a declarator and decree ordaining the respondents to comply with Article 9. The court held that the appellants were entitled to this remedy. The respondents were required to inform the company secretary of their desire to transfer shares, thereby initiating the procedure that allows other shareholders to purchase the shares. The court emphasized that the respondents' actions demonstrated a clear desire to transfer their shares, thus obligating them to follow the article's procedure.

3. Interpretation of the Term "Transfer" within Article 9:
The court discussed the meaning of "transfer" in the context of Article 9. It was argued that "transfer" should be interpreted narrowly to mean only the registration of a transfer deed. However, the court rejected this interpretation, stating that "transfer" encompasses the entire process of selling and transferring shares, including the agreement to sell and the receipt of the purchase price. The court emphasized that the purpose of Article 9 is to prevent sales to strangers unless other shareholders are given an opportunity to purchase the shares.

4. Whether the Respondents are "Desirous of Transferring" their Shares:
The court held that the respondents were indeed desirous of transferring their shares. This conclusion was based on the fact that the respondents had entered into a contract to sell their shares, received the purchase price, and executed proxies in favor of the purchaser's nominee. The court stated that the respondents' desire to transfer their shares continued as long as the contract with Mr. Fraser subsisted.

5. The Applicability of Article 9 to the Respondents' Actions:
The court concluded that Article 9 applied to the respondents' actions. The respondents argued that they were not desirous of transferring their shares within the meaning of the article because they had a specific desire to transfer only to Mr. Fraser. The court rejected this argument, stating that the article's purpose would be defeated if it did not apply to specific desires to transfer to particular persons. The court emphasized that the respondents' actions demonstrated a clear desire to transfer their shares, thereby triggering the obligations under Article 9.

Conclusion:
The court allowed the appeal, holding that the respondents had breached Article 9 and were obligated to comply with its terms. The respondents were required to inform the company secretary of their desire to transfer shares, thereby initiating the procedure that allows other shareholders to purchase the shares. The court emphasized that the respondents' actions demonstrated a clear desire to transfer their shares, thus obligating them to follow the article's procedure. The court's decision reinforced the importance of adhering to the provisions of the articles of association to protect the rights of all shareholders.