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2018 (11) TMI 1779 - Tri - Companies LawOppression and mismanagement - transfer of shares in violation of the articles of association of the respondent-company - Closely held company - petitioners' contention is that the opportunity to exercise their discretion to purchase shares of respondent No. 7 being denied, is in violation of article 7 - HELD THAT:- This Bench is of the opinion that the grounds invoked for oppression and mismanagement are unsustainable. Reliance on article 7 of the articles of association is misplaced. The facts of this case would be governed by article 8 which are categorical and explicit and need no elucidation or interpretation. The articles govern transfer of equity. There is no ambiguity in the said provisions. The provisions of the articles of association in a private limited company are sacrosanct. While article 7 ensures that the affairs of a company remain exclusively in the hands of the members and does not pass on to outsiders unless the members do not wish to exercise their pre-emptive right to purchase them, in case of transfer/transmission of shares by a member to his family, there can neither be any objection nor any ground to withhold registration of the transfer. A transfer from a member to member therefore does not require prior approval of the Board, nor gives the option of purchase to all existing members first. The object of article 7 is only to ensure that the shareholding is restricted to the existing shareholders. Article 8 is an exception to the above provision and is applicable when the transfer takes place within the existing members. In such a situation articles of association are not violated as the only logic behind these articles is to prevent an outsider from purchasing shares without giving opportunity to existing members to exercise their rights. Non-grant of an opportunity to object to the said transfer on grounds of undesirability and raising objections - HELD THAT:- The Board had approved the transfer which even otherwise it was legally bound to do. The petitioners being only shareholders have no discretion in this matter and have no right to object. Learned senior counsel for the respondents have submitted that it is only by way of abundant precaution that the resolution passed by the Board approving the transfer in favour of respondents Nos. 5 and 6 was put up before the annual general meeting for ratification by way of transparency, and which in any event had the approval of 75 per cent. in value of the votes. Notwithstanding the explanation that an interest free security amount has been taken from M/s. Firmenich Aromatics for respondent No. 1's property at Daman (as duly reflected in their books of account) to discharge an obligation of an interest bearing inter corporate deposit availed for acquiring the said property, and the investments made in Amitysoft Tech P. Ltd., being in full knowledge of the petitioners (on grounds of their being indirectly connected with Amitysoft Tech P. Ltd.), this Bench is of the view that these are business decisions to be taken by the Board, and cannot be interfered with by this Tribunal - No grounds for oppression or mismanagement are made out on the allegations made by the petitioners. Petition dismissed.
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