NCLAT DELHI VOIDS SHARE TRANSFERS MADE CONTRARY TO ARTICLES OF ASSOCIATION ANUP KUMAR KHEMANI VS BALENDRA CHOUDHURY

 NCLAT DELHI VOIDS SHARE TRANSFERS MADE CONTRARY TO ARTICLES OF ASSOCIATION

 ANUP KUMAR KHEMANI VS BALENDRA

 CHOUDHURY

FACTS OF THE CASE

COMPANY:	Assam Medical Corporation Pvt. Ltd
CORE ISSUE:	Whether shares could be transferred to outsiders without following the pre-emption procedure under Article 15 of the AOA.
NCLAT'S FINDING:	The procedure under Article 15 was not followed in toto; therefore, the transfers were contrary to the Articles and ultra vires.
IMPORTANT PRINCIPLE:	A transfer of shares made in complete violation of the Articles of Association is void.

KEY TAKEAWAY

NCLAT held that a share transfer made contrary to the Articles of Association is void and cannot be sustained merely because the Board approved it.

In this case, Article 15 of the Articles of Association contained a pre-emptive mechanism governing transfer of shares. The prescribed procedure was not followed, and objections were raised by existing shareholders. NCLAT found that the Board could not bypass the Articles and validate the transfers through its resolutions.

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