Pre-emption rights in articles require prescribed notice and offer; failure permits register rectification but not compelled sale.

Non-compliance with an articles of association clause requiring notice to the board and pro rata offers to existing members justifies setting aside an unauthorised share transfer and rectification of the register, but does not itself create a right to compel the transferor to sell to existing members. The procedural pre-emption mechanism in the articles governs acquisition rights and must be followed to vest purchase rights at the value fixed by the board or auditors. The adjudicatory body may order rectification and compensation for loss but lacks power to direct a specific member to transfer shares to particular persons.

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Issues: Whether, having set aside an unauthorised transfer of shares for non-compliance with Article 7(c) of the articles of association, the Company Law Board or the court can compel the transferor to sell the shares pro rata to existing members (the appellants) in lieu of the transfer to third parties.

Analysis: The articles of association, as registered under the Companies Act, create the procedure for transfer of shares and the rights of members. Article 7(c) requires a transferor to give notice to the board and for the board to offer the shares to existing members pro rata; only upon such an offer does an existing member acquire the right to purchase at the value fixed by the board or auditors. Non-compliance with Article 7(c) justified setting aside the transfer and rectification of the register, but it does not, by itself, create a vested right in existing members to compel the transferor to sell absent the prescribed notice and offer. Further, under Section 111(5)(b) of the Companies Act, the Company Law Board's powers are to direct rectification of registers and to award compensation for loss; the statute does not confer power to direct a member to transfer shares to a particular person.

Conclusion: The appellants do not have a right to compel the 2nd respondent to transfer the shares to them de hors the procedure in Article 7(c); the Company Law Board was correct in limiting relief to setting aside the transfers and directing rectification of the register and refusing to order specific transfer of the shares in favour of the appellants.

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