NATIONAL LAW UNIVERSITY JODHPUR

Project submission in the subject of Company Law I

Topic: Conflict Between Articles of Association and Shareholders’

Agreements

Summer Semester (August- December 2020)

Submitted By:
Submitted To:
Shruti Maheshwari (1710)
Mr. Sarthak Mishra
Vrinda Nargas (1722)
Faculty of Law
Semester V
National Law University, Jodhpur
Section B

B.A. LL.B (Hons.)

 SYNOPSIS

INTRODUCTION
An Article of Association (“AOA”) is a document which regulates the operations and the
internal management of the company. It is part of the constitution of the company and it has a
binding effect on existing as well as future shareholders. A Shareholders’ Agreement
(“SHA”) is an agreement between the company and the shareholders which describes the
rights and obligations of the shareholders of the company. It also provides for the details with
respect to information of the management of the company and the benefits and the safeguards
provided to the shareholders of the company.

However, there have always been instances when provisions of the AOA come in conflict
with those of the SHA. Therefore, the project will analyse which has the overriding effect
with the help of various judgments of Supreme Court and High Courts. Further, the article
will also analyse the position in Indian jurisprudence vis-à-vis English jurisprudence.

RESEARCH QUESTIONS
 What is an Article of Association?
 What is a Shareholders’ Agreement?
 What is the conflict between AOA and SHA?
o With respect to transferability of shares
o With respect to affirmative votes
o With respect to method of dispute resolution
 What is the position in English jurisprudence?
 What is the scope of improvement in this aspect?

2
 TABLE OF CONTENTS

Introduction .......................................................................................................................... 4

Articles of Association .......................................................................................................... 4

Shareholders’ Agreements..................................................................................................... 5

The Position in Indian Jurisprudence ..................................................................................... 7

Conflict Between Articles of Association and Shareholders’ Agreements .......................... 7

The Position in English Jurisprudence ................................................................................. 10

Alteration of the Articles as a Result of Shareholders’ Agreements ................................. 11

Contradictions Between the Provisions of Shareholders’ Agreements and Articles of

Association and the Prevailing Clause ............................................................................. 12

Member to Member Enforceability of Articles ................................................................ 13

Scope of improvement ........................................................................................................ 14

Bibliography ....................................................................................................................... 16

3
 INTRODUCTION
An Article of Association (“AOA”) is a document which regulates the operations and the
internal management of the company. It is part of the constitution of the company and it has a
binding effect on existing as well as future shareholders. A Shareholders’ Agreement
(“SHA”) is an agreement between the company and the shareholders which describes the
rights and obligations of the shareholders of the company.

It is pertinent to note that recent times have borne witness to the advent of an increasing
amount of investment into different companies by a range of investors. Such investors have
invested significant amounts of money into companies and in lieu of their investment, have
procured shareholding in such companies. In a number of circumstances, such investors have
been seen to be desirous of obtaining rights in addition to those that they may procure as
shareholders of the company, and similarly placing certain obligations on the existing
shareholders of the company. As a result, shareholders’ agreements have come to play a vital
role in addressing the needs of investors and have become a common phenomenon to define
the rights and obligations of its shareholders. 1

However, there have always been instances when provisions of the AOA come in conflict
with those of the SHA. Therefore, the project will analyse which document has the overriding
effect with the help of various judgments of Supreme Court and High Courts. Further, the
article will also analyse the position in Indian jurisprudence vis-à-vis English jurisprudence.

ARTICLES OF ASSOCIATION
The Articles of Association are the bye-laws of a company.
The Articles contain rules and regulations of a company which facilitates the internal
management of the company and proper conduct of its business. 2 The Articles are therefore,
considered as a rule book of a company since they play a paramount role in the
administrating and governing the internal affairs of the company as per the objectives laid
under Memorandum of Associations. To put it simply, it deals with the rights of the members
of the company inter se.

As per Section 2(5) of the Companies Act, 2013 articles means the Articles of Association
(AOA) of a company originally framed or altered or applied in pursuance of any previous

1
Aditya Seth, Shareholders’ Agreements: Examining the Increasingly Common Phenomenon, 41 BUSINESS
LAW REVIEW 44, 44-45 (2020).
2
The Companies Act 2013 § 5, cl. 1.

4
company law or of this Act.3 The Articles are compulsory documents which have to be
registered at the time of incorporation of the company. 4 The Articles have the effect of
binding the company and its members to the same extent as if there were covenants on the
part of the company, and of each member, to observe those provisions. 5

OBJECTIVES AND NATURE OF ARTICLES

In case of Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Limited,6 the
Supreme Court of India defined Articles as a contract among the members as well as between
the members and the company for governing the rights and duties related to the membership
of the company. The Court further stated that the provisions of Articles legally bind a
company and its members and it specifically lays down the powers of the officers of
company.

In Ashbury Railway Carriage and Iron Co. Ltd. v. Riche,7 it was stated that Articles are
secondary to the MoA and in consonance with the MoA, Articles proceed to define the mode
and form of business to be undertaken by the company and the changes to be made in the
internal regulations of the company from time to time. Further, the shareholders may frame
the any rules, for the functioning of the company, within the area prescribed by MoA.

SHAREHOLDERS’ AGREEMENTS
A Shareholders’ Agreements refers to a contractual agreement between the shareholders of a
company. It details the operations of the company and defines the rights and obligations of
the shareholders inter se. It may delineate such rights and obligations which are over and
above the provisions of the Companies Act. Mutual consent is essential for arriving at a
shareholders agreement and the company is also a consenting party.

It is important to note that while such SHAs create personal obligations for members who
sign the agreement, they do not aid in regulating the company in a manner similar to Articles
of Association.

The Shareholders’ Agreements contains the rights and obligations of shareholders; pre-
emptive rights; capitalization table; number of shares owned by a person; cost of shares;

3
The Companies Act 2013 § 2, cl. 5.
4
The Companies Act 2013 § 7, cl. 1(a).
5
The Companies Act 2013 § 10, cl. 1.
6
Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Limited, AIR 1971 SC 422.
7
Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) LR 7 HL 653.

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shareholders percentage of ownership in the company; how shares can be transferred;
quorum; procedure as to how a company shall run; liabilities of shareholders; protection of
minority shareholders; appointment of directors; financial needs of company; etc. 8

Typically, an SHA will contain provisions on:

 shareholders’ rights and obligations;

 management of day to day affairs of the company including but not limited to
appointment or nomination of director;

 all aspects relating to shares including but not limited to further issue of shares, sale or
transfer of shares, restrictions on sale or transfer and;

 protection of minority shareholders of the company and related issues

In an AOA, the contents which are in respect to shareholders are: shareholders rights, their
voting power, issuance of new shares, call on share capital; quorum of meetings; profit
sharing; voting rights; transfer of shares; return of shares; forfeiture of shares; cap table; lien;
buy-back; so these aspects in AOA can be amended, by the procedure established by law. 9

Those other aspects which are not relating to the shareholders shall be excluded in such
amendments like: constitution of company; powers of board; number of meetings; etc. But
one important aspect is when making such an amendment, if the amendment intends to
increase the liability of shareholders towards the company then approval of them is required,
before making such changes.

The enforceability of the covenants contained in the shareholders’ agreements, but not
incorporated into the constitutional documents of the company, has been vexed question
under Indian law. Accordingly, in order to avoid uncertainty, most minority investors in
Indian companies ensure the incorporation of the shareholders’ covenants into the company’s
articles of association.10 This has resulted in protections provided in the shareholders'
agreement including dispute resolutions clauses being replicated in the articles of association
of the company. In many instances, the minority shareholders of Indian companies pursue
statutory remedies of oppression, prejudice or mismanagement under the Companies Act,

8
Ayush Verma, Incorporation in the Amended Articles of Association from Shareholders Agreement,
IPLEADERS, (Sep. 2, 2020), https://blog.ipleaders.in/aspects-shareholder-agreement-amended-articles-
association/.
9
Id.
10
The Companies Act 2013, §§ 5, 13, 48, 66.

6
2013 to enforce these rights enshrined in the shareholders' agreement and articles of
association of the company. 11 In some cases, the promoters/ majority shareholders in Indian
companies seek to avoid such proceedings by seeking reference of the underlying dispute to
arbitration.

THE POSITION IN INDIAN JURISPRUDENCE

Generally, while negotiating transaction documents, like a joint venture agreement, share
purchase agreement, a SHA in relation to an investment or acquisition in a company,
investors insist on incorporating their rights as shareholders provided in the SHA, into the
AOA, thereby enabling them to participate as shareholders, in key decisions vis-à-vis the
management of the company, in order to protect their interests.

However, enforceability of these rights under the SHA, against other shareholders and/ or the
company, if the same have not been incorporated in the AOA, has been a subject of judicial
scrutiny and has received varied interpretation during the past few years.

CONFLICT BETWEEN ARTICLES OF ASSOCIATION AND SHAREHOLDERS’ AGREEMENTS

With respect to transferability of shares

The Supreme Court in Messer Holdings Ltd. v. Shyam Madan Mohan Ruia,12 interpreted the
term “freely transferable” occurring in Section 111A(2) of the 1956 Act, which is present in
the form of proviso to Section 58(2) of the Companies Act, 2013. Section 58(2) states that
any contract or arrangement between two or more persons in respect of transfer of securities
shall be enforceable as a contract. Therefore, a contract between shareholders and the
company is binding on the company, with respect to transfer of securities in the event the
AOA is silent on the matter.

The court held that consensual agreements between shareholders relating to their specific
shares do not impose restriction on transferability of shares and can be enforced like any
other agreement. Thus, a clause in share purchase agreement creating a right of pre-
emption/the right of first refusal in the event of either party selling their shareholding is not
violative of S. 111A or for that matter violative of Section 9 of the 1956 Act [now Section 6
of the 2013 Act].13

11
The Companies Act 2013, § 188.
12
Messer Holdings Ltd. v. Shyam Madan Mohan Ruia, (2016) 11 SCC 484.
13
A. RAMAIYA, GUIDE TO THE COMPANIES ACT, 49 (18th ed. 2014).

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This means that a public company cannot put any fetters on the right of a shareholder from
transferring his shares, either in its articles or otherwise. The shareholder has complete
freedom to do whatever he wants to do with the shares and as such he can always enter into
consensual agreement regarding transfer of his shares, as the shares are freely transferable at
his choice. Proviso to s. 58(2) of the 2013 Act explicitly recognises shareholders’
contracts/arrangements pertaining to transfer of shares. The legislative intent behind also
stated that the proviso has been inserted “to recognize Shareholders Agreements/Contracts as
per commercial practices.”14

In V.B. Rangaraj v. V.B. Gopalakrishnan,15 the issue for consideration before the Hon’ble
Supreme Court of India was whether the shareholders of a company can enter into an
agreement that is contrary to or inconsistent with the AoA of the company. Herein, a SHA
between shareholders of a private company sought to restrict a living member to transferring
his shares only to a member of his own branch of the family. However, the AoA of the
company did not envisage such restrictions. The Court gave primacy to the AoA as it held
that provisions of the Shareholders’ Agreement imposing restrictions are to be authorised
only when they are incorporated in the Articles of Association, albeit such provisions being
consistent with Company legislation. Hence, the SHA restrictions would bind neither the
shareholder nor the company.

In S. P. Jain v. Kalinga Cables Ltd.,16 the Apex Court held that agreements between non-
members and members of the Company will not bind the company, but there is nothing
unlawful in entering into agreement for transferring of shares. A breach of SHA which does
not breach the Articles of Association is a valid corporate action, but the parties aggrieved
from such breach can enforce the agreement get remedies under the general law between the
company and the shareholders.

In HTA Employees Union v. Hindustan Thompson Associates Ltd.,17 shares of the respondent
company were transferred in favour of selected management staff and the Court had to
determine whether transfer of shares to selected members justified. The Court held that it
could not be disputed that shareholders had the opportunity to enter into any agreement in

14
STANDING COMMITTEE ON FINANCE, Fifteenth Lok Sabha, Report on The Companies Bill, 2011, Fifty Seventh
Report (June 2012).
15
V.B. Rangaraj v. V.B. Gopalakrishnan, (1992) 1 SCC 160.
16
S. P. Jain v. Kalinga Cables Ltd, AIR 1965 SC 1535.
17
HTA Employees Union v. Hindustan Thompson Associates Ltd, Delhi High Court, Regular First Appeal No.
247/2004, Oct. 5, 2013.

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their best interest, provided such agreement did not run contrary to AoA of the company.
Further, shareholders could not be restricted from any transfer for which no restriction was
mentioned under AoA. The Court found no irregularity in the transfer of shares in the present
case, and held that once the amended AOA comes into effect, no rights in contravention of it
can be claimed and enforced. However, the suit was dismissed as the appellants were not
parties to the suit nor were their rights were getting affected.

In Premier Hockey Development Private Ltd v. Indian Hockey Federation18 (“PHDPL

case”), the defendant entered into a Subscription and Shareholders Agreement with ESS to
create the plaintiff company. Articles 10.3.2 and 10.3.3 of the SSA referred to, however these
clauses were not incorporated into the AOA of the company. The Court found these clauses
not to be in violation of any of the terms of the AOA, nor were these in contravention of any
legal provision of the Companies Act, 1956 or any rules framed thereunder. The court held
that the SSA was clearly binding on the shareholders and the company, as the company was
also a party to the SSA.

With respect to affirmative votes

The Supreme Court in Gherulal Parekh v. Mahadeo Das Maiya19 held that freedom of
contract can be restricted by law only in cases where it is for some good for the community.
Companies Act 1956, RBI Regulations or the I.T. Act do not explicitly or impliedly forbid
shareholders of a company to enter into agreements as to how they should exercise voting
rights attached to their shares. Shareholders can enter into any agreement in the best interest
of the company, but the only thing is that the provisions in the SHA shall not go contrary to
the Articles of Association. The essential purpose of the SHA is to make provisions for
proper and effective internal management of the company. It can visualise the best interest of
the company on diverse issues and can also find different ways not only for the best interest
of the shareholders, but also for the company as a whole.

In World Phone India Pvt. Ltd. v. WPI Group Inc.,USA,20 the Delhi High Court had to decide
whether the Company Law Board was justified in holding that since there was no bar to the
affirmative vote in the AoA of the company, the clause in the Joint Venture Agreement
(“JVA”) which provided for the affirmative vote must be given effect to. This also involved

18
Premier Hockey Development Private Ltd v. Indian Hockey Federation, 2011 (2) ArbLR 492 (Delhi).
19
Gherulal Parekh v. Mahadeo Das Maiya, AIR 1959 SC 781.
20
World Phone India Pvt. Ltd. v. WPI Group Inc., USA, [2013] 178 Comp Cas 173 (Delhi).

9
the interpretation of Section 9 of the 1956 Act,21 which the Company Law Board had deemed
inapplicable to private companies. The High Court of Delhi held that since the AoA was
silent on the existence of an affirmative vote, and was not amended subsequent to entering
into the JVA, it would be incorrect to say that the respondent could exercise their affirmative
vote.

With respect to method of dispute resolution

To safeguard the interests of shareholders, dispute resolution clauses contained in SHAs are
also replicated in the AoA.22

In Akshya Ispat Udyog Pvt. Ltd. v. Ishwardas Rasiwasia Agrawal,23 the AoA of the company
was not amended to incorporate the arbitration clause mentioned as the preferred method of
dispute resolution in the document entered into between the parties. The Court ruled that
arbitration could not be availed by the parties as the AoA was silent on this aspect.

The case of Umesh Kumar Baveja v. IL & FS Transportation Network Ltd.24 revolves around
to a Subscription-cum-Shareholders Agreement (“SSA”) which was entered into by the
parties to the suit. A dispute arose as shares were not allotted to the respondents in
accordance with the SSA. The SSA contained a provision of arbitration in the event of any
dispute with respect to the SSA, however this was not incorporated in the AOA of the
“special purpose vehicle”. The Delhi High Court held that the position with respect to the
enforceability of unincorporated clauses was clear and thus the arbitration provision could not
be enforced.

THE POSITION IN ENGLISH JURISPRUDENCE

This section of the project will analyse some of the aspects related to Articles of association,
shareholders’ agreement and the relation between them under the English law. It will further
analyse, if the approach of English courts can be adopted in the Indian context.

English Law recognises shareholders’ agreements and enforces such agreements in line with
the general principles of contract. Case laws emanating from English courts have considered
that shareholders have the contractual freedom to regulate their participation in a company.

21
The Companies Act 1956 § 9.
22
Shreyas Jayasimha & Rohan Tigadi, Arbitrability of Oppression, Mismanagement and Prejudice Claims in
India: Need for Re-Think, 11 NUJS L. REV. 547 (2018).
23
Akshya Ispat Udyog Pvt. Ltd. v. Ishwardas Rasiwasia Agrawal, Company Law Board Mumbai, Civil Appeal.
No. 328 of 2013 in Original Petition No. 117 of 2013, Jul. 2, 2020.
24
Umesh Kumar Baveja v. IL & FS Transportation Network Ltd, [2014] 182 Comp Cas 309 (Delhi).

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Further, Articles of Association are governed under the UK Companies Act 2006 (“CA
2006”).

ALTERATION OF THE ARTICLES AS A RESULT OF SHAREHOLDERS’ AGREEMENTS

Under the CA 2006 the Articles may be amended through a special resolution.25 English
courts, however, have been faced with challenging circumstances vis-à-vis the alteration of
the Articles as a result of shareholders’ agreements. The position, established in Cane v.
Jones,26 was that shareholders are free to enter into informal unanimous agreements and any
decision arising therefrom, whether or not taken in a general meeting, has the effect of special
resolution. The case here concerned a shareholders’ agreement which required the elected
chairman to not exercise a casting vote where an equality of votes occurred. The Articles of
the company in question however gave the chairman a casting vote. The Court concluded that
this provision of the Articles had been effectively altered by all the shareholders’ agreement
and it was validly altered based on the fundamental Company Law principle that ‘all
corporators of a company acting together can do anything which is intra vires the
company’. 27

Indeed, this judgment set the ground for other judgments, having the effect that an agreement
by all the shareholders resulting in an amendment of the Articles, whether taken at a meeting,
passed by a resolution or not, is sufficient to amend the Articles. The main focus is unanimity
among the shareholders. However, problems may in fact arise in the case of shareholders’
agreements that conflict with the Articles. 28

Such a principle may be adopted under the Indian law in some instances where the company
concerned is a private and family run company. In such instances, flexibility may be
permitted as the shareholders are known to the company and are insiders to the company.
Further, in case of alteration to the Articles of a private company, unanimity of shareholders
is a necessity to make an alteration. Thus, this condition is apparently satisfied under this
principle.

25
The Companies Act 2006 § 21, cl. 1 (UK).
26
Cane v. Jones, [1981] 1 All ER 533.
27
Id.
28
Grantham, Ross, The Unanimous Consent Rule in Company Law, 52 THE CAMBRIDGE LAW JOURNAL 245,
248-249 (1993).

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CONTRADICTIONS BETWEEN THE PROVISIONS OF SHAREHOLDERS’ AGREEMENTS AND

ARTICLES OF ASSOCIATION AND THE PREVAILING CLAUSE

Shareholders’ agreements are additional to the Articles and cover common aspects. One of
the common provisions typically found in shareholders’ agreements are conflict and
prevailing provisions. The intention behind clauses of this nature is to protect a situation
where an inconsistency occurs between the provisions of the Articles and the shareholders’
agreement. The extent to which an inconsistency clause in a shareholders’ agreement would
override the provisions of the Articles is not clear and it will be up to the court to resolve.

In the judgment Dear and Griffith v. Jackson,29 the UK Court of Appeal examined a conflict
between the provisions of a company’s Articles and the shareholders’ agreement in relation
to the appointment and removal of directors. In this case, the Articles provided that the board
of directors had the power to unanimously remove a director whereas the shareholders’
agreement had appointed the directors. The matter was further complicated by the fact that
the plaintiffs held two different capacities as shareholders on the one hand and directors of
the subsidiary company itself on the other. Additionally, the shareholders’ agreement did not
provide for a prevailing clause. The Court of Appeal examined inter alia the different
capacities held by the plaintiffs as shareholder-directors, passing judgment that directors are
subject to the Articles and the provisions of the Companies Act, therefore it would be
difficult for them to apply the shareholders’ agreement which may restrict their capacity as
directors of the company.

The judgment highlights the importance of ensuring that the provisions of both documents do
not contradict one another and for clear intentions to be set out in order avoid conflicts. Both
the Articles and the shareholders’ agreement include provisions in common and which are
dealt with contemporaneously. This supports the requirement for the Articles to be carefully
modified once a shareholders’ agreement is concluded. This serves to ensure that any
inconsistency is seen to at the earliest possibility before an issue becomes contentious. This
largely acts as a safeguard to both legal instruments and protects the manifestation of the
parties’ intentions.30

29
Dear and Griffith v. Jackson, [2013] EWCA Civ 89.
30
Nicola Lapira, Shareholders’ Agreements: A Tool to Shareholder Safeguards?, LINKEDIN, (Sep. 2, 2020),
https://www.linkedin.com/pulse/shareholders-agreements-tool-shareholder-safeguards-nicola-lapira.

12
Indian courts should also adopt this approach of construing the Articles and SHA
harmoniously in case of conflicting provisions. Such an approach will maintain the sanctity
of Shareholders’ agreement and will not deter shareholders from entering into such
agreements. Instead of out rightly considering SHA unenforceable in case of inconsistent
provisions as observed above in the case of V.B. Rangraj,31 the courts should try to balance
out the inconsistencies and harmoniously construct both the documents.

MEMBER TO MEMBER ENFORCEABILITY OF ARTICLES

Under the CA 2006, constitution of the company binds the company and its members to the
same extent as if there were covenants on the part of the company, and of each member, to
observe those provisions. 32 In this regard, the CA 2006 defines a company’s constitution to
include the company’s articles of association. 33

Notably, a question has arisen as to whether such a statutory contract binds members of a
company inter se. In other words, a company may be able to enforce the AoA against a
member; however member to member enforcement and enforcement by a member against a
company have been confused by the varied case law and jurisprudential opinions.

In Welton v. Safferty34, court was of the opinion that the Articles do not constitute a contract
between shareholders but regulated their rights inter se. A similar approach was taken in
Salmon v. Quin & Axens35 where it was observed that courts were unlikely to enforce articles
between shareholders unless the action was brought by the company or a liquidator. A
varying approach was however followed in Rayfield v. Hands36 where it was concluded that
there was a contract inter se which was directly enforceable by one member against another.
Thus, it can be seen that case laws are divided in relation to the enforcement of AoA between
members.

This uncertainty has resulted in shareholders’ agreements, to give effect to shareholders’

rights and obligations. Such an agreement is one which can be executed between all or certain
shareholders of a company and the company may or may not be a party to the agreement.37

31
V.B. Rangaraj v. V.B. Gopalkrishnan, (1992) 1 SCC 160.
32
The Companies Act 2006 § 33, cl. 1 (UK).
33
The Companies Act 2006 § 17 (UK).
34
Welton v. Safferty, [1897] AC 299.
35
Salmon v. Quin & Axens, [1909] AC 442.
36
Rayfield v. Hands, [1958] 2 WLR 851.
37
Aditya Seth, supra note 1.

13
Considering the position in India, in case of Naresh Chandra Sanyal,38 as discussed above,
the Supreme Court of India defined Articles as a contract among the members. But, this does
not imply that the articles lead to the creation of an express contract among the members of
the company. So, the member of the company does not have the right to bring a suit against
other members for enforcement of articles. 39

Thus, with uncertainties and difficulties in the enforcement of provisions of Articles in cases
of member to member enforcement, shareholders’ agreements should be considered as a
favourable instrument by courts to determine the rights and duties of shareholders.

SCOPE OF IMPROVEMENT
It would be incorrect to question why shareholders’ agreements have become an increasingly
common phenomenon. The obscurity that surrounds the enforcement of the articles of
association as a statutory contract and the complexity pertaining to the alteration of the
articles, have led such agreements to be of noteworthy significance. Further, these
agreements have proved to be a valuable instrument from the point of view of investors,
which enables them to cater to their requirements with regard to rights and obligations that
they may require as a consequence of their investment. Having said so, it is important to note
that although shareholders’ agreements have proved to be rather beneficial. 40

However, the issue of conflicting provisions in a shareholders agreement and the articles of
association of a company is a never ending debate. In India, it is a settled law that articles of
association prevails over shareholders agreement. The courts, however, have not adopted a
blanket view in deciding that the provisions of the SHA which have not been incorporated in
the AOA will be invalid. Through various judgments, a recent deviation has been observed,
wherein the judiciary has departed from the view laid down in the Rangaraj41 Judgment, and
has held that the terms of the SHA do not become unenforceable merely on account of the
same not being incorporated in the AOA.

This recent approach of courts towards SHAs is appreciated. Though, SHAs do have certain
limitations in the current operational framework. However, considering the advantages

38
Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Limited, AIR 1971 SC 422.
39
Muskan Agarawal, Articles of Association, STARTUP SOLICITORS, (Sep. 1, 2020),
https://www.startupsolicitors.com/articles-of-association/.
40
Emmet Scully, Shareholders’ Agreements - A practical Analysis, LEXOLOGY, (Sep. 3, 2020),
https://www.lexology.com/library/detail.aspx?g=df9f2b34-8384-407d-80ff-6c58152854b5.
41
V.B. Rangaraj v. V.B. Gopalkrishnan, (1992) 1 SCC 160.

14
which shareholders’ agreements offer to the shareholders of the company who are, in fact, the
owners of the company, cannot be denied. Perhaps it is due to this that even with their
constraints, shareholders’ agreements have progressively been made use of by companies
and, more often than not, have been found to be indispensable to the smooth running of a
company’s business.42

Thus, the Indian courts need to be more liberal in accepting the shareholders’ agreements. In
case of inconsistency and conflict, Indian courts should try to construe the Articles and SHA
harmoniously. Such an approach will maintain the sanctity of Shareholders’ agreement.
Instead of considering SHA unenforceable at the outset, as observed in the case of V.B.
Rangraj,43 the courts should try to balance out the inconsistencies and harmoniously
construct both the documents, which was done in the English case of Dear and Griffith v.
Jackson44 as already discussed above. Further, when Articles are silent on some of the
provisions mentioned in the SHAs, the courts should make promising efforts to uphold the
validity of such provisions of shareholders’ agreements.

With the amendment to the Specific Relief Act,45 perhaps now the balance is titled in favour
of enforcing contractual rights of parties that are not incorporated in the AOA, since it has
done away with the discretion of the courts to grant specific performance of contracts.
Remedies in case of breach of contract are now available to aggrieved parties as a matter of
right, and not merely an exception. However, a number of courts in the country still continue
to adhere to the law as laid down by the Supreme Court in the Rangaraj judgment. Until a
definitive judgment of the Supreme Court on this issue is rendered again, it would be prudent
for the terms of the SHA to be incorporated into the AOA, to avoid any impediment in
enforcing the terms of the SHA.46

42
Aditya Seth, supra note 1.
43
V.B. Rangaraj v. V.B. Gopalkrishnan, (1992) 1 SCC 160.
44
Dear and Griffith v. Jackson, [2013] EWCA Civ 89.
45
The Specific Relief (Amendment) Act 2018.
46
Taskeen Hamid, Enforceability of SHA Provisions Not Incorporated in the Articles of Association of A
Company, LINKEDIN, (Sep. 3, 2020), https://www.linkedin.com/pulse/enforceability-sha-provisions-
incorporated-articles-company-hamid.

15
 BIBLIOGRAPHY

Articles

Aditya Seth, Shareholders’ Agreements: Examining the Increasingly Common Phenomenon,

41 BUSINESS LAW REVIEW 44, 44-45 (2020). ..................................................................... 4
Grantham, Ross, The Unanimous Consent Rule in Company Law, 52 THE CAMBRIDGE LAW
JOURNAL 245, 248-249 (1993). ........................................................................................ 11
Shreyas Jayasimha & Rohan Tigadi, Arbitrability of Oppression, Mismanagement and
Prejudice Claims in India: Need for Re-Think, 11 NUJS L. REV. 547 (2018). .................. 10

Books

A. RAMAIYA, GUIDE TO THE COMPANIES ACT, 49 (18th ed. 2014). ......................................... 8

Internet Sources

Nicola Lapira, Shareholders’ Agreements: A Tool to Shareholder Safeguards?, LINKEDIN,

(Sep. 2, 2020), https://www.linkedin.com/pulse/shareholders-agreements-tool-
shareholder-safeguards-nicola-lapira. .............................................................................. 13
Taskeen Hamid, Enforceability of SHA Provisions Not Incorporated in the Articles of
Association of A Company, LINKEDIN, (Sep. 3, 2020),
https://www.linkedin.com/pulse/enforceability-sha-provisions-incorporated-articles-
company-hamid. .............................................................................................................. 15
Emmet Scully, Shareholders’ Agreements - A practical Analysis, LEXOLOGY, (Sep. 3, 2020),
https://www.lexology.com/library/detail.aspx?g=df9f2b34-8384-407d-80ff-6c58152854b5.
........................................................................................................................................ 14
Muskan Agarawal, Articles of Association, STARTUP SOLICITORS, (Sep. 1, 2020),
https://www.startupsolicitors.com/articles-of-association/. .............................................. 14
Ayush Verma, Incorporation in the Amended Articles of Association from Shareholders
Agreement, IPLEADERS, (Sep. 2, 2020), https://blog.ipleaders.in/aspects-shareholder-
agreement-amended-articles-association/. .......................................................................... 6

Reports

STANDING COMMITTEE ON FINANCE, Fifteenth Lok Sabha, Report on The Companies Bill,
2011, Fifty Seventh Report (June 2012)............................................................................. 8

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Cases

Akshya Ispat Udyog Pvt. Ltd. v. Ishwardas Rasiwasia Agrawal, Company Law Board
Mumbai, Civil Appeal. No. 328 of 2013 in Original Petition No. 117 of 2013, Jul. 2, 2020.
........................................................................................................................................ 10
Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) LR 7 HL 653. ........................ 5
Cane v. Jones, [1981] 1 All ER 533. .................................................................................... 11
Dear and Griffith v. Jackson, [2013] EWCA Civ 89. ........................................................... 12
Gherulal Parekh v. Mahadeo Das Maiya, AIR 1959 SC 781. ................................................. 9
HTA Employees Union v. Hindustan Thompson Associates Ltd, Delhi High Court, Regular
First Appeal No. 247/2004, Oct. 5, 2013. .......................................................................... 9
Messer Holdings Ltd. v. Shyam Madan Mohan Ruia, (2016) 11 SCC 484. ............................ 7
Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Limited, AIR 1971 SC 422.5
Premier Hockey Development Private Ltd v. Indian Hockey Federation, 2011 (2) ArbLR 492
(Delhi)............................................................................................................................... 9
S. P. Jain v. Kalinga Cables Ltd, AIR 1965 SC 1535. ............................................................ 8
Salmon v. Quin & Axens, [1909] AC 442. .......................................................................... 13
Umesh Kumar Baveja v. IL & FS Transportation Network Ltd, [2014] 182 Comp Cas 309
(Delhi)............................................................................................................................. 10
V.B. Rangaraj v. V.B. Gopalakrishnan, (1992) 1 SCC 160. ................................................... 8
Welton v. Safferty, [1897] AC 299. ..................................................................................... 13
World Phone India Pvt. Ltd. v. WPI Group Inc., USA, [2013] 178 Comp Cas 173 (Delhi). . 10

Statutes

The Companies Act 1956 § 9. ............................................................................................. 10

The Companies Act 2006 § 17 (UK). .................................................................................. 13
The Companies Act 2006 § 21, cl. 1 (UK). .......................................................................... 11
The Companies Act 2006 § 33, cl. 1 (UK). .......................................................................... 13
The Companies Act 2013 § 10, cl. 1. ..................................................................................... 5
The Companies Act 2013 § 2, cl. 5. ....................................................................................... 5
The Companies Act 2013 § 5, cl. 1. ....................................................................................... 4
The Companies Act 2013 § 7, cl. 1(a).................................................................................... 5
The Specific Relief (Amendment) Act 2018. ....................................................................... 15

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