DARIUS RUTION KAVASMANECK versus GHARDA CHEMICALS LIMITED & OTHERS

Citation: [2014] 11 S.C.R. 1119 · Decided: 28-10-2014 · Supreme Court of India · Bench: JASTI CHELAMESWAR · Disposal: Appeal(s) allowed

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Judgment (excerpt)

• 
[2014) 11 S.C.R. 1119 
DARIUS RUTION KAVASMANECK 
v. 
GHARDA CHEMICALS LIMITED & OTHERS 
(Civil Appeal No. 2481 of 2014) 
OCTOBER 28, 2014 
[J. CHELAMESWAR AND A.K. SIKRI, JJ.] 
A 
B 
Companies Act, 1956 - ss. 3(1)(iii), 43A and 43A (1C), 
43A (11) - Articles of Association - Article 57 - Pre-emption 
clause - Amendment made by the Companies (Amendment) 
C 
Act, 2000 to ss. 3 and 43A - Effect of, on the rights and 
obligations created by Art. 57 of the Articles of Association 
of the Company - On facts, Company incorporated as private 
company, became public company - Art. 57 contained 
restrictions on the rights of all the shareholders to transfer their D 
shares, shareholders desiring to sell his shares to offer 
shares to other shareholders of the company - Respondent 
no. 2-shareholder selling shares in the Company, committing 
breach of pre-emption agreement contained in Art. 57-
Company petition by appellant-minority shareholder -
E 
Dismissed by Company Law Board - High Court also 
dismissed the appeal holding that the agreement between 
shareholders of unlisted public company conferring a right of 
pre-emption embodied in its Articles is invalid· and 
unenforceable - On appeal, held: Failure of the company to 
F 
amend its Articles of Association to give effect to clause (d) 
of s. 3(1 )(iii) does not effect the operation of its Art. 57 -
Requirement of amending the Articles of Association 
pursuant to the Amendment Act 53 of 2000, insofar as such 
companies are concerned, is only optional on the part of the 
G 
shareholders - Companies (Amendment) Act, 2000. 
Allowing the appeal, the Court 
1119 
H . 
1120 
SUPREME COURT REPORTS 
[2014] 11 S.C.R. 
A 
HELD: 1.1. The concern is with those private 
companies which became public companies by virtue of 
operation of s. 43(1C) of the Companies Act, 1956,by 
accepting deposits from public. Mere acceptance of the 
deposits from PUBLIC prior to 13.12.2000 did not 
B contravene any law. Such acceptance was only 
regulated by virtue of Section SBA. Though such private 
companies were treated as public companies by virtue 
of Section 43A(1C) they were entitled to continue those 
stipulations dealing with the matters specified under 
c Section 3(1 )(iii)(a)(b)&(c). It is only w.e.f. 13.12.2000, 
Section 3(1 )(iii) of the Act came to be amended by 
inserting sub-clause (d) which obligates a private 
company to contain a prohibition against any invitation 
or acceptance of deposits from PUBLIC in such 
0 company's Articles of Association. [Para 61] [1154-F-H; 
1155-A] 
·1.2. What happens to those private companies which 
existed prior to 13.12.2000 and had also invited and 
c.ollected deposits from. public as they were. legitimately 
• 
E entitled to do so prior to the amendment? If the ..J. 
conclusion of the High Court that the concept of 
DEEMED public company is abolished is correct, all 
those private companies should become public 
companies (not HYBRID/DEEMED public companies) 
F overnight until their Articles of Association are amended. 
· As a consequence thereof, their respective shareholders 
lose a vested right flowing out of the Articles of 
Association (created by. a contract) which they 
collectively enjoyed till 13.12.2000 to restrict the right of 
G individual shareholders to freely transfer their shares. 
Such a collective right by definition inheres in the 
shareholders of a private company and protected by 
virtue of proviso to Section 43A(1C) notwithstanding the 
fact that such companies were treated as public 
H companies prior to 13.12.2000. To deprive 'the 
• 
DARIUS RUTTON KAVASMANECK v. ~HARDA 1121 
CHEMICALS LIMITED 
shareholders of HYBRID companies such a collective 
A 
right would be too drastic a change overnight without 
giving any option or time to the HYBRID company and 
its members to retain the basic character of the company 
as a private company. [Para 62) [1115-B-E] 
1.3. The destruction of the collective rights of the 
members of the companies, would require, at the least, 
an express provision of law and such a provision must 
B 
be a 'reasonable restriction' within the meaning of that 
expression occurring in Art.19(4) of the Constitution. In 
C 
the absence of any express provision which takes away 
the fundamental right of the shareholders of a private 
company, there is inclination to read a restriction on the 
collective right of the shareholders of a private company 
to restrict the right of the individual shareholders to fre

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