Shareholders Agreement And Articles Of Association India

This flexible position was recognized by the Supreme Court in 2012 in Vodafone4, as part of the Company Act 1956. The Tribunal found that the SHA is essentially a contract between some or all other shareholders of a corporation whose purpose is to confer rights and to give obligations under the Corporations Act. The Tribunal found that the SHA was a private document linking the parties, but not the other remaining shareholders or the company, which provides greater flexibility in resolving shareholder disputes and the nature of future capital contributions. Accordingly, the Tribunal stated verbatim that „this court (in V.B Rangaraj) considered that the provisions of the shareholder contract which provide for restrictions, even if they are compatible with corporate law, can only be authorized if they are included in the statutes, is (s) an opinion that we do not defend. (As a result), shareholders may enter into an agreement in the best interests of the company, but the only thing is that the provisions of the SHA do not violate the AoA. The main objective of the SHA is to take steps to ensure proper and effective internal management of the company. It can visualize the best interest of the company for different subjects, and also find different ways, not only for the good of the shareholders, but also for the company. In the case before, the Supreme Court held that any conflict with the portability of the shares, even if the shareholders` pact is valid and compatible with the Corporations Act, can only impose restrictions on the portability of the shares if those restrictions are included in the statutes. In other words, a company can only follow and implement what is enshrined in the statutes in the event of a conflict between the articles and the shareholders` pact. From the decision, we can consider that the law gives priority to the statutes over the shareholders` pact and that the shareholders` pact cannot go beyond the statutes.

Indian courts tend to prefer shareholder agreements where there is already a mention in the company`s by-law and the agreement does not conflict with corporate law. Paragraph 2 of Section 58 states that any contract or agreement between two or more persons relating to the transfer of securities is enforceable as a contract. Therefore, a contract between the shareholders and the company is binding on the company with respect to the transfer of securities if the AOA is silent on this matter. In Menier v Hooper`s Telegraph Works, one company changed its articles in a way that another company benefited from, but the change was not beneficial to the company itself. The Tribunal found that the minority shareholders of the company could challenge the amendment on the grounds that it was fraud by the majority shareholders. The directors of World Phone adopted a resolution authorizing the right to issue shares without obtaining the votes required for such a broadcast.