(a) All the transactions related to share issuance or share purchase have certain definitive

documents that are drafted by the parties, further negotiated, and finally executed. Along
with these definitive documents, these parties also wish to draft an agreement that
governs their rights and obligations after the shares are issued or purchased, that is when
shareholders agreement (SHA) comes into picture. The duties and liabilities that arise out
of a shareholders agreement come after the Share Subscription (SSA) or Share Purchase
Agreement (SPA) are closed. SHA can also be looked like a corporate pre-nuptial
agreement. The relationship between the shareholders is regulated by the SHA. SHA has
provisions for management rights, exit rights and various other commercial rights of the
shareholders.

By nature, SHA is between the shareholders of the company, and they are held privately.
On the contrary, Articles of Association are statutory documents of a company that are
mandated by Section 5 of Indian Companies Act, 2013. These articles of the company
need to be made publicly available. The parties involved in SHA can sue the other party
for a breach of contract but if anything is beyond the scope of what is mentioned in the
articles of the company, then it is rendered void. The details will be discussed in the next
segment of the answer. The intention between SHA and AoA are different, though they
might seem overarching from certain perspectives. This is because, the intention of SHA
is mainly to govern the investments made by the shareholders of the company. It
primarily focuses more on their own roles and how their investment is protected by using
various mechanisms such as imposing anti-dilution rights, share transfer restrictions, pre-
emptive rights, exit rights and liquidation preferences. That being said SHAs do have
provision for various governing rights as well, but these governing rights are also to
protect their investment mainly. These rights include, appointment of directors, quorum
right, affirmative voting right, information rights and so on. On the other hand, AoA is a
mother document of the company, and its implications are upon all the members of the
company. It is by default a binding on all the current and future members of the company.
The SHA might have provisions for appointing board of directors, but AoA will have
provisions for the extent of their powers. Their powers cannot go ultra-vires of AoA of a
company. The matters related to internal management and day to day affairs of the
company are all governed by the AoA of the company. Similarly Share transfer
restrictions also need to be mentioned in the AoA of the company, merely having in in
SHA is not enough.

(b) In an important case, “V.B. Rangaraj V. VB v. Gopalkrishnan and Ors. , 1991” the
Supreme Court held that any clause that is present in the SHA and not present in the
articles of the company, then that clause or the agreement to that extent would be
rendered unenforceable. Much later, in another Supreme Court case, “Vodaphone
International Holdings BV vs. Union of India, 2012” The court in this case has taken a
slight turn from its previous ruling, saying that if the AoA is silent on particular clauses
mentioned in SHA, then those clasues will be enforceable but if the AoA is expressly and
in direct contradiction to the clauses mentioned in SHA, then the clauses mentioned in the
SHA are not enforceable. The court further held that, both SHA and AoA need to obey
the Indian companies Act, 2013. Since, this ruling was a part of a main judgement, it did
not serve as a ratio decidendi of the case, it was a part of the obiter dicta. This matter was
again discussed in a Delhi High Court case, “World phone India Pvt. Ltd and Ors. v. WPI
World Group Inc., USA, 2013. This court essentially relied upon the ruling given by the
Supreme Court in the VB Rangaraj Case.
This shows that the Indian courts have been dynamic with their approach and there is no
blanket precedent. However, it is quite clear that weightage is being given to the AoA
over the SHA. It is very important to note that in another important Supreme Court ruling,
“Messer Holding Ltd. Vs Shyam Madanmohan Ruia & Ors., 2016” the court exclusively
held that share transfer restriction mentioned in the SHA can only be enforceable if they
are mentioned in the Articles of Association (AoA) of the company. In conclusion, we
can safely say that the clauses mentioned in the SHA cannot be against the AoA.
However, the clauses mentioned in SHA ‘may be’ enforceable if the AoA is silent on it
and the court will evaluate these clauses on a case by case basis.