MAHARASHTRA NATIONAL LAW UNIVERSITY MUMBAI

TERM PAPER TOWARDS FULFILMENT OF THE ASSESSMENT

IN THE SUBJECT OF COMPANY LAW-1

TITLE OF THE PROJECT

CONFLICT BETWEEN ARTICLES OF ASSOCIATION AND SHAREHOLDERS’

AGREEMENTS

FINAL DRAFT

SUBMITTED TO: PROF. ANAND SHRIVAS SUBMITTED BY: SATYAM

(COURSE INSTRUCTOR) ROLL NO. : 2019098

B.A.,LL.B.(HONS.) FIFTH SEMESTER, THIRD YEAR

TABLE OF CONTENTS
 1. INTRODUCTION 4
2. ARTICLES OF ASSOCIATION 4
3. SHAREHOLDERS’ AGREEMENTS 5
4. THE POSITION IN INDIAN JURISPRUDENCE 7

CONFLICT BETWEEN ARTICLES OF ASSOCIATION AND SHAREHOLDERS’

AGREEMENTS 7

5. THE POSITION IN ENGLISH JURISPRUDENCE 10

A. ALTERATION OF THE ARTICLES AS A RESULT OF SHAREHOLDERS’
AGREEMENTS 11
B. CONTRADICTIONS BETWEEN THE PROVISIONS OF SHAREHOLDERS’
AGREEMENTS AND ARTICLES OF ASSOCIATION AND THE PREVAILING
CLAUSE 12
C. MEMBER TO MEMBER ENFORCEABILITY OF ARTICLES 13
6. CONCLUSION AND SCOPE OF IMPROVEMENT 14

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

2
(“SHA”) is an agreement between the company and the shareholders which describes the
rights and obligations of the shareholders of the company.

It is worth noting that recent years have seen an increase in the amount of money invested in
various firms by a variety of investors. Such investors have spent huge sums of money in
firms and, in exchange for their investment, have obtained a stake in such companies. In a
number of cases, such investors have been observed to be interested in getting rights in
addition to those that they may receive as owners of the firm, as well as imposing certain
duties on the company's current shareholders. As a result, shareholder agreements have
grown to play an important role in meeting the demands of investors and have become a
typical occurrence in defining the rights and duties of its owners.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 the 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 thus
regarded as a company's rule book since they play a crucial role in administering and
controlling the internal operations of the firm in accordance with the objectives outlined in

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
3
the Memorandum of Associations. To put it simply, it deals with the rights of the company's
members as individuals.

According to Section 2(5) of the Companies Act, 2013, articles refer to the Articles of
Association (AOA) of a company that were initially created, revised, or implemented in
accordance with any prior company legislation or this Act 3.The Articles are compulsory
documents which have to be registered at the time of incorporation of the company. 4 The
Articles bind the company and its members to the same degree as if there were covenants on
the part of the company and each member to follow 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 classified Articles as a contract between members as well as between
members and the company that governs the rights and obligations associated with company
membership. The Court went on to say that the terms of the Articles legally bind a business
and its members, and it expressly defines the rights of the company's executives.

In Ashbury Railway Carriage and Iron Co. Ltd. v. Riche,7 It was observed that Articles are
secondary to the MoA, and in accordance with the MoA, Articles proceed to specify the
manner and form of business to be done by the company, as well as the modifications to be
made in the company's internal rules from time to time. Furthermore, the shareholders have
the authority to create any regulations for the operation of the firm that fall within the scope
of the MoA.

SHAREHOLDERS’ AGREEMENTS
A Shareholders' Agreement is a contractual agreement between a company's shareholders. It
describes the company's activities and establishes the shareholders' rights and duties. It may
define rights and duties that go beyond the requirements of the Companies Act. A
shareholders agreement requires mutual consent, and the firm is also a consenting party.

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
4
It is important to note that, while such SHAs impose personal duties on those who sign the
agreement, they do not help to regulate the business in the same way as Articles of
Association do.

The Shareholders' Agreements specifics the rights and obligations of shareholders, as well as
pre-emptive rights, capitalization tables, the number of shares owned by a person, the cost of
shares, shareholders' percentage ownership in the company, how shares can be transferred,
quorum, the procedure for how a company should be run, shareholder liabilities, minority
shareholder protection, director appointments, and the company's financial needs.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 covenants contained in shareholders' agreements but not incorporated

into the company's constitutive papers has been a contentious issue under Indian law. As a

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.
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result, in order to minimise confusion, most minority investors in Indian enterprises ensure
that the shareholders' covenants are incorporated into the company's articles of association. 10
As a result, the safeguards offered in the shareholders' agreement, including dispute
resolution procedures, have been reproduced in the company's articles of association. In
many cases, minority shareholders of Indian firms seek statutory remedies for oppression,
prejudice, or mismanagement under the Companies Act, 2013 in order to enforce the rights
embodied in the shareholders' agreement and the company's articles of association.. 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.

10 The Companies Act 2013, §§ 5, 13, 48, 66.

11 The Companies Act 2013, § 188
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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
word "freely transferable" found in Section 111A(2) of the 1956 Act, which appears as a
proviso to Section 58(2) of the Companies Act, 2013. According to Section 58(2), any
contract or agreement between two or more individuals for the transfer of securities is
enforceable as a contract. In the case that the AOA is silent on the subject, a contract between
shareholders and the company is binding on the company with respect to the transfer of
securities.

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

This means that a public business cannot, in its articles or otherwise, restrict a shareholder's
ability to transfer his shares. As the shares are freely transferable, the shareholder has entire
flexibility to do anything he wants with them. As a result, he may always enter into
consensual agreements about the transfer of his shares. A provision in Section 58(2) of the
2013 Act expressly recognises shareholder contracts/arrangements relating to the transfer of
shares. The legislative intent further stated that the proviso was introduced "to respect
Shareholders Agreements/Contracts in accordance with business practises."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

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
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
7
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 and 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
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 Federation 18 (“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.

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
18 Premier Hockey Development Private Ltd v. Indian Hockey Federation, 2011 (2) ArbLR 492 (Delhi
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 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
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.

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).
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

9
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 component of the project will look at some of the characteristics of Articles of
Association, Shareholders' Agreements, and their relationship under English law. It will also
investigate if the approach of English courts may be used in the Indian setting.

English law recognises and enforces shareholder agreements in accordance with normal
contract principles. Case law from English courts has held that shareholders have contractual
discretion to restrict their involvement in a firm. Furthermore, the UK Companies Act 2006
("CA 2006") governs Articles of Association.

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

24 Umesh Kumar Baveja v. IL & FS Transportation Network Ltd, [2014] 182 Comp Cas 309 (Delhi).
25 The Companies Act 2006 § 21, cl. 1 (UK).
26 Cane v. Jones, [1981] 1 All ER 533
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resolution. The dispute at hand was a shareholders' agreement that obliged the elected
chairman not to cast a deciding vote in the event of a tie vote. The company's Articles, on the
other hand, provided the chairman a casting vote. The Court decided that the shareholders'
agreement effectively amended this section of the Articles, and that it was legitimately
revised based on the fundamental Company Law concept that 'all corporators of a business
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.

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 considered a
discrepancy between the terms of a In respect to the appointment and removal of directors
company's Articles and the shareholders' agreement. In this case, the Articles stated that the
board of directors had the authority to dismiss a director unanimously, but the shareholders'

27 Id.
28 Grantham, Ross, The Unanimous Consent Rule in Company Law, 52 THE CAMBRIDGE LAW JOURNAL 245,
248-249 (1993).
29 Dear and Griffith v. Jackson, [2013] EWCA Civ 89.
11
agreement had nominated the directors. The situation was exacerbated further by the
plaintiffs' dual roles as shareholders on the one hand and directors of the subsidiary firm on
the other. Furthermore, the shareholders' agreement did not include a prevailing
provision.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

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, the 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

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
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).
12
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

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.

CONCLUSION AND SCOPE OF IMPROVEMENT

It would be erroneous to speculate on why shareholders' agreements are becoming more
popular. The opacity surrounding the enforcement of the articles of association as a statutory
contract, as well as the complexities associated with the amendment of the articles, have led
to such agreements being of notable relevance. Furthermore, these agreements have proven to

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.
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/.

13
be a helpful tool from the standpoint of investors, allowing them to respond to their needs in
terms of rights and duties that may arise as a result of their investment. Having stated that, it
is vital to emphasise that, while shareholder agreements have shown to be helpful,.40

The problem of contradictory terms in a shareholders agreement and a company's articles of

association, on the other hand, is a never-ending argument. It is established law in India that
the articles of organisation take precedence over the shareholders agreement. However, the
courts have not taken a blanket approach in ruling that SHA elements that have not been
integrated into the AOA are unlawful. A subsequent variation has been noticed via several
judgements, in which the judiciary has strayed from the approach given down in the
Rangaraj Judgment, and has decided that the conditions of the SHA do not become
unenforceable just because they are not included in the AOA.

This current court approach to SHAs is applauded. SHAs do, however, have several
constraints in the existing operating framework. However, the benefits that shareholders'
agreements provide to the company's shareholders, who are also the company's owners,
cannot be contested. Perhaps it is because of this that, despite its limitations, shareholders'
agreements have been increasingly used by firms and, more often than not, have been deemed
to be important to the smooth operation of a company's operations.41

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,42 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. Jackson43 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, 44 Perhaps now the balance is tilted in favour
of enforcing contractual rights of parties that are not incorporated in the AOA, since it has

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 Aditya Seth, supra note 1.
42 V.B. Rangaraj v. V.B. Gopalkrishnan, (1992) 1 SCC 160.
43 Dear and Griffith v. Jackson, [2013] EWCA Civ 89.
44 The Specific Relief (Amendment) Act 2018.
14
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.45

45 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.

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