TMI Blog2007 (5) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... 4490 equity shares of the First Respondent to the Second Respondent. There is no dispute about the factual position that the Second Respondent was not a shareholder of the First Respondent prior to the aforesaid issue. 2. In September 2003, the Second Respondent informed the First Respondent of its desire to transfer 1490 shares out of the 4490 shares held by it in the First Respondent. The aforesaid shares were offered to the Appellant and ultimately in February 2006, 1490 shares were transferred to the Appellant. 3. The Appellant instituted a petition before the Company Law Board (CLB), in order to challenge ( i ) the transfer of 320 shares of the issued and subscribed capital of the First Respondent to the Third Respondent; and ( ii ) The allotment of 4490 shares of the issued capital of the First Respondent to the Second Respondent. The challenge before the CLB was that the transfer/allotment was contrary to the articles of Association of the First Respondent. The Appellant sought rectification of the Register. 4. The CLB by its order dated 22-11-2006 held that ( i ) The First Respondent had correctly transferred 320 shares to the Third Respondent; and ( ii ) The F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons to whom the offer is made that he declines to accept the shares offer, the Directors may dispose of the same in such manner, as they think beneficial to the company. The Directors may likewise so dispose of any shares which are not capable of being offered without fraction, to the members in proportion to their holdings." The CLB observed that a plain reading of article 8 makes it clear that all new shares had to be offered to the existing shareholders of the company. The aforesaid article does not empower the Board to allot shares to outsiders on the date of the increase of the paid up capital. Prior to the allotment of 4490 shares to the Second Respondent on 2-12-2001, the paid up capital of the company was only Rs. 51,000. In the present case the company proceeded to allot a majority of shares to the Second Respondent who was an outsider without offering the new shares to the existing shareholders, resulting in a violation of the provisions of article 8. The allotment of 4490 new shares to the Second Respondent was consequently held to be illegal and void. That being the position, the company was required to cancel 1490 shares transferred to the name of the Appellant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue to be fixed as hereinafter provided. A transfer notice may include several shares and in such case shall operate as if it were a separate notice in respect of each." Article 24 provides thus : "In case the Board agrees with the value of share fixed by the proposing transferor the share shall be offered to the members at that value. In case the Board does not agree with proposed transferor as the fair value of the share the Auditors of the company shall on the application of either party, certify in writing the sum which in their opinion, is the fair value, and in so certifying the auditors shall be considered to be as an expert and not as arbitrator." Article 25 inter alia provides that the shares specified in any transfer notice shall be offered by the Directors in the first place to members other than the proposing transferor as nearly as may be in proportion to the existing shares held by them respectively. 10. The contention of the Appellant is that Article 23 applies to all categories of shares transferred, that is, even to a transfer inter se among members, the only exception being a transfer pursuant to article 22. Hence the submission is that the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure for a member who desires to transfer shares the procedure being a notice constituting the Board as an agent to transfer the shares to any member or "person selected as aforesaid". "Person selected as aforesaid" is a person as set out in article 22 as one whom the Board considers in the interests of the company. Article 23 contains an exception to its applicability. The exception is where the transfer is made pursuant to regulation 22. If article 23 were held to apply to all transfers, as the appellant submits, the words "except where the transfer is made pursuant to regulation 22" will be rendered otiose . A construction which renders a part of the instrument otiose must be eschewed and a harmonious construction which will give a field of operation for all provisions must be preferred. The submission urged on behalf of the Appellant would render the opening words of article 22 redundant. Article 5 of the Articles of Association provides that the shares shall be under the control of the Directors who may allot or otherwise dispose of the same to such persons, on such terms and at such time, as the Directors think fit and may give to any person any share either at par or ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
