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TMI Blog2019 (8) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... s case falls within the aforesaid exception. Further, that the alteration of balance of power as a sequel to the transfer of shareholding by a member in favour of an existing member would be a concept alien to the true scope and ambit of these Articles. This is apart from the fact that on facts the Tribunal has not found any material alteration on the aspect of balance of power and such finding is not shown to be erroneous, much less perverse. The impugned order does not suffer from any legal infirmity or factual frailty. The interpretation placed on the language of Article 7 and 8 of the Articles of Association of Respondent No. 1 Company by the Tribunal is perfectly in consonance with the settled position of law - Appeal dismissed. - Company Appeal (AT) No. 32 of 2019 - - - Dated:- 3-7-2019 - Justice Bansi Lal Bhat Member (Judicial) and Balvinder Singh Member (Technical) For Appellants : Mr. Raju Ramachandran, Sr. Advocate with Mr. Rishad A. Showdhury, Ms. Madhurika Ray and Mr. Ishwar Mohanty, Advocates. For Respondents : Dr. U. K. Chaudhary, Sr. Advocate with Mr. Dhruv Gupta, Mr. Sanjeet Ranjan and Mr. Nakul Gandhi, Advocate for R-1 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in regard to affairs of the Company. It was alleged that the financial statements and statutory records were withheld and notices of meetings were not effected on the Appellants. Communications from Appellants in this regard were attended to partially and no intimation of AGM was given to the Appellants for annual year 2014-15. Subsequently, in the AGM scheduled for 19.09.2015 decision to transfer the shares of Respondent No. 7 M/s Multidimensional Holdings and Consultants Pvt. Ltd. to Respondent No. 5 and 6 viz. Finhelp Investment and Consultants (Mumbai) Pvt. Ltd. and Mr. Jyotindra Shantilal Patel was ratified. According to Appellants, this was done in utter disregard of the Article 7 of AOA, which provides for sale of shares by a member only after notifying the proposed sale to the Board of Directors which must offer to the other shareholders such shares at a fair value and only upon such offer being not accepted the member proposing the transfer of shares would be entitled to sell and transfer the shares to any person other than the Shareholders. The Appellants contended before the Tribunal that denial of opportunity to exercise their preemptive right of purchase of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final. Article 8. 1. No transfer of shares shall be made or registered without the previous sanction of the Directors, except when the transfer is made by any member of the Company to another member or to a member s spouse or child or children or his/her heirs and the Directors may decline to give such sanction without assigning any reason, subject to Section 111 of the Act. 4. According to learned counsel for Appellants, the right to preemption couched in broad and unambiguous terms within the ambit of Article 7 is not limited to transfers to non-members/ outsiders but it applies to all transfers irrespective of the status of transferee. It is contended that the Tribunal erred in holding that the only objective of such Article was to regulate the entry of outsiders into the company. It is further contended that the transfer of shares must be strictly in accordance with the Articles and any transfer effected without allowing the preemptive clause to operate would be violative of the Articles of Association and would be construed as an act of oppression. 5. Per contra, it is argued on behalf of Respondents that in case shares are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent operation. Both Articles can have full play provided their para-makers are understood. The sale or transfer of one shareholder to another shareholder or to the relatives mentioned in Article 8, is excluded from the operation of Article 7. Both Articles can act independently of each other. Further, nowhere Article 8 say, it is subject to the provision of Article 7. Therefore, it is clear that the transfer of shares in favour of the existing shareholders does not require to be effected after following the procedure stated in Article 7. 7. The decision rendered by the Hon ble Single Judge was upheld by a Division Bench of the Hon ble Karnataka High Court in appeal titled Mukundlal Manchanda Vs. Prakash Roadlines Ltd. Ors., reported in (1996) 87 Compcas 102 (kar) , relevant whereof is reproduced hereinbelow:- 28 . .x .x x .The scheme and the object behind articles 7 and 8 appear to be to prevent an outsider from purchasing the shares of the respondent-company by way of sale or otherwise and in that direction the provisions of articles 7 and 8 envisage that before the third party, i.e., a non-member can be allowed to purchase shares of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, children or legal heirs. Article 8 thus dispenses with the issuance of notice for allowing the members to exercise their right of pre-emption/ prior purchase in respect of the shares offered for sale to the existing members, their spouses, children or legal heirs as the transfer of share by any mode including the sale would not induct any third party/ stranger in the nucleus of members/ shareholders. It can be stated without any amount of ambiguity that the settled position of law divests the members/ shareholders of a private company of right of pre-emption/ prior purchase of shares transferred/ sold by a member to an existing member/members, their spouses, children or legal heirs. Admittedly, this case falls within the aforesaid exception. Further, that the alteration of balance of power as a sequel to the transfer of shareholding by a member in favour of an existing member would be a concept alien to the true scope and ambit of these Articles. This is apart from the fact that on facts the Tribunal has not found any material alteration on the aspect of balance of power and such finding is not shown to be erroneous, much less perverse. 9. For the foregoing reason ..... X X X X Extracts X X X X X X X X Extracts X X X X
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