Strikes down AoA clause conferring discretionary powers to directors on share allotment
CLB sets aside disproportionate share allotment in pvt co (family business) that reduced one group of shareholdings, as “oppressive”, directs Board of Directors to restore the earlier shareholding pattern; Rejects respondent co’s contention that Article 7 of Articles of Association gave blanket powers to the directors to allot shares as they deem fit; Holds that,”no doubt that right of allotment is accrued to the Directors under Article 7.. but here, it is a family company running on partnership line, therefore, it cannot be said that Board is at liberty to change the shareholding pattern at the wish of the management in control”; Observes that pvt ltd cos were closely held cos., i.e., shares were held within the members of the co which was akin to partnerships where partners owe a duty to act with utmost good faith towards each other, thus, “the proportionate right the other family members have in the company cannot be whittle down by an Article of Association”; Further holds that though Articles have given Directors absolute right to make allotment, Articles don’t give them right to make disproportionate allotments to the shareholdings already existing in the company, thus, “to beat one section of shareholders, Board cannot take a route of preferential basis and allot shares disproportionately”; Relies on SC ruling in Dale & Carrington Investment (P) Ltd vs P. K. Prathapan:New Delhi CLB
The ruling was delivered by Shri. B.S.V. Prakash Kumar (Judicial Member).
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