2013 (8) TMI 1062

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.... earlier the Company was a foreign Company but in the year 1968 there was a change in the equity shareholding, making way for Indian participation in the Management of the Company; the defendants/respondents no.2 to 5 are the persons at the helm of the affairs and managing the affairs of the Company; (b). that in 1973 the Company suffered a financial crises and was on the verge of liquidation; that the members of the staff of the Company, both management and non-management, decided to salvage the Company and to make it a 100% staff owned Company and took steps in the said direction and bought all the equity share capital of the Company and all the employees of the Company from top to bottom became employee shareholders under a joint venture of management staff and non-management staff of the Company; (c). that a Memorandum of Settlement dated 10th June, 1974 was entered into, whereunder the equity shares of the Company were to be held by the management and the non-management staff in the ratio of 65:35; (d). that the understanding was also duly incorporated in the Articles of Association of the Company and the shares held by the employee, on death, promot....

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....e to the non- management staff; D. for declaration that the allocation above 65% of the employees' equity to the management staff before 8th October, 1998 and the transfer of those shares to the holding company was null and void; and, E. for accounts for dividend of the excess shares held by the management staff. 4. The respondents/defendants contested the suit by filing written statement inter alia pleading:- (a). that the provision contained in Article 10 of the Articles of Association of the Company requiring the ratio of 65:35 to be maintained had been dropped vide the amendment of the said Articles w.e.f. 29th June, 1998 and after 29th June, 1998 there was no obligation for maintenance of the said ratio; (b). that the cause of action for the suit was thus founded on an agreement or arrangement which was at the relevant time not incorporated or embodied in the Article of Associations of the Company; (c). that the respondents/defendants were bound by the Articles of Association and with the deletion from Article 10 of the clause requiring the maintenance of the said ratio, no such right could be claimed by the appellant/plaintiff; ....

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.... was to be transferred to the holding Company of the employees; (III). that the appellant/plaintiff in support of its case was relying upon the letter dated 6th April, 1998 of the Company; (IV). however the date mentioned in the letter dated 6 th April, 1998 was for the limited purpose of determining the eligibility to transfer the shares and the object whereof was to protect the right of the employees who had retired, resigned and died prior to 30th April, 1998 to hold shares till 8th September, 1998 and this date could not be confused with the date of amendment of Article 10 deleting the provision earlier in existence of maintenance of ratio 65:35; (V). that even if the interpretation of the appellant/plaintiff of letter dated 6th April, 1998 was to be accepted, the same being of a date prior to the amendment on 29th June, 1998 of the Articles of Association, the proposal even if any in the letter dated 6 th April, 1998 stood modified in accordance with the amended Articles of Association; (VI). that the Supreme Court in V.B. Rangaraj Vs. V.B. Gopalakrishanan (1992) 1 SCC 160 has held that whenever there is a conflict between an agreem....

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....o of 65:35 even after the amendment of the Articles of Association on 29th June, 1998 and till the date of transfer of last batch of 40% shareholding to the holding Company of the employees. 9. It has been enquired from the counsel for the appellant/plaintiff whether the amendment dated 29th June, 1998 to the Articles of Association of the Company, while deleting the provision for maintenance of the ratio of 65:35 between the non-management and the management staff, permits any such exception. 10. The counsel has fairly stated that it does not. 11. Once the amendment to the Articles of Association of the Company had come into effect on 29th June, 1998 and which freed the Company from the obligation to, in effecting transfer of shares maintain the ratio of 65:35, the appellant/plaintiff cannot in my view enforce any right, at least against the Company, in contravention thereof. Reliance by the learned Addl. District Judge in this regard on V.B. Rangaraj is apposite. 12. A two Judge Bench of the Supreme Court in the said judgment held that the only restriction on the transfer of the shares of a Company is as laid down in its Articles, if any and a restriction which is not....

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....uld give the first option of purchase to the members of that branch and only if the offer so made is not accepted, the share would be sold to others - this was held to be a blanket restriction on all shareholders present and future. It was held in M.S. Madhusoodhanan that where there was no such restriction on the transferability of shares in the agreement and the agreement is between particular shareholders only, V.B. Rangaraj would not apply. 16. The distinction made in M.S. Madhusoodhanan of V.B. Rangaraj does not come to the rescue of the appellant/plaintiff in as much as the facts of the present case are akin to that in V.B. Rangaraj. The settlement/arrangement/agreement in the present case is also between all the shareholders of the Company and places a blanket restriction on all shareholders present and future and the present case would thus be governed by the law laid down in V.B. Rangaraj. 17. The Division Bench of this Court in Spectrum Technologies USA Inc. repelled the reliance placed on V.B. Rangaraj by observing that in V.B. Rangaraj there was no agreement to which the Company was a party and which provided that the Company would amend its Articles of Associatio....