V. B. RANGARAJ versus V. B. GOPALAKRISHNAN AND ORS.

Citation: [1991] SUPP. 3 S.C.R. 1 · Decided: 28-11-1991 · Supreme Court of India · Bench: P.B. SAWANT · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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V. B. RANGARAJ 
A 
V. 
V. B. GOPALAKRISHNAN AND ORS. 
NOVEMBER 28, 1991 
[P. B. SAW ANT AND B. P. JEEV AN REDDY, JJ.] 
B 
Companies Act, 1956 : 
Sections 3(iii), 26, 28, 31, 39, 40, 82, 109 and 110-Transfer of 
shares-Shareholder's right to transfer-Subject to restrictions contained in 
the Articles of Association of the ·Company-Agreement among shareholders C 
restricting transfer of shares-Not specified in the Articles of Association--
Whether binding on the company or on shareholders--Shares--Nature of-
Transferable like any other movable property. 
Of the total shareholding of 50 in a private limited company, 25 
shares each were held by two brothers Band G of a joint family. It was D 
agreed among the two brothers, that each of the two branches of the 
family would continue to hold the shares in equal measure, viz. 25 each 
and if any member in either of the branches desired to sell his share/ 
shares, he would give the first option to the members of the branch to 
which he belongs and only in case the offer was not accepted, the s~ares 
could be sold to others. However, the Articles of Association of the said E 
company were not amended in conformity with the oral agreement. 
' After the death of the two brothers B and G, one of the sons of B 
sold the shares to sons of G, which was contrary to the oral agreement. 
The other sons of B not having got the option to purchase as per the said F 
oral agreement, filed a suit against their brother, for a declaration that 
the sale was void and not binding on them. Defendants 4 to 6 were the 
purchasers of shares. Defendant No. 2, another son of B was made 
proforma defendant. The Trial Court decreed the suit and held that the 
sale of the said shares was invalid. The first appellate court dismissed the 
appeals preferred by the defendants. In the second appeals filed by the G 
defendants, the High Court held 'that the sale of the shares by the first 
defendant in favour of defendants 4 to 6 was invalid and hence the 
plaintiffs and the second defendant became entitled to purchase the said 
shares; that the said oral agreement was binding on the c~mpany, and 
that the company was bound in law to register the said shares in the 
plaintiffs' names. 
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SUPREME COURT REPORTS 
[1991] SUPP. 3 S. C. R. 
A 
Aggrieved against the High Court's decisions, the defendants pre-
ferred appeals before this Court contending that the said oral agreement 
in effect imposed an additional restriction on the right to transfer the 
shares, which_ was not envisaged by any of the Articles of Association: 
that it was not binding on any shareholder or a vendee of the shares; that 
it was unenforceable at law and therefore, not binding on the company. 
B It was further contended that the High Court could not have directed the 
transfer of shares in favour of plaintiffs as the first defendant could not 
be forced to sell the shares to the plaintiffs. 
The respondents contended that the shareholders were bound by 
the oral agreement; that the agreement was entered into to maintain the 
C ownership of the company in the family and to ensure that the two 
branches of the family had an equal share in the management and 
profits and losses of the company; that there was nothing in the Articles 
of Association which prohibited such agreement and that the two branches 
of the family being party to the agreement, it was enforceable against 
them. 
D 
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F 
.G 
Allowing the appeals, this Court, 
HELD: 1.1 Whether under the Companies Act or Transfer of 
Property Act, the shares are, transferable like 
any other movable 
property. The only restriction on the transfer of the shares of a company 
is as laid down in its Articles, if any. A restriction which is not specified 
in the Articles is, therefore, not binding either on the company or on the 
shareholders. The vendee of the shares cannot be denied the registration 
of the shares purchased by him on a ground other than that stated in the 
Articles. [6 G,H] 
1.2 In the instant case, the private agreement which is relied upon 
by the plaintiffs whereunder there is a restriction on a living member to 
transfer his shareholding only to the branch of the family to which he 
belongs in terms imposes two restrictions which are not stipulated in the 
Article. There was a restriction on a living member to transfer the 
shares only to the existing member and another restriction was
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