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Business Law Presentation

Rawaid Asif Salman Farooq Asfand Khalid Mohammed Saad Alamgir

2003 CMR 132 (Supreme Court of Pakistan)


Petitioners : United Liner Agencies of Pakistan (pvt) Ltd and 4 others Respondents: Miss Mahenau Agha and 8 others

Companies Ordinance 1984


Section 26, 27, 28 : Articles of Association Scope and objective Section 2 sub-section 28: Transfer of shares of a Private Limited Company to comply with Articles of Association Section 89: Transfer of shares of private limited company- Inclusion of pre-emptive right for transfer and purchase of shares is a valid and legal covenant in the Articles of Association

Overview of the case


Ms. Agha files a suit against United Liners for illegal transfer of 20,000 shares from 2 shareholders to a foreign company Scanmaritime. The judge in chambers dismissed the suit

Ms. Agha appealed in the high court. The division bench of the Sindh High Court reversed the decision. United Liners and 4 others appealed in the Supreme Court of Pakistan against the decision of the High Court

Decision of the Division Bench of the High Court


Transaction passed in the Board Meeting was against Article 40 United Liners were under obligation to offer Ms. Agha and Mr Mirza Humayoun Agha a proportionate amount of shares Article 39 did not place any embargo against Pakistani citizens The transfer of shares held by foreign shareholders could only be made through company and no through the private negotiation

Decision of the Division Bench of the High Court


The transaction of sale of shares by petitioners Nos.3 and 4 in favour of petitioner no.5 was made in clandestine manner without following the requirement of Articles 41 to 46 of the Articles of Association.

Petitioners Case
Article 40 : No share shall be transferred to a person who is not a member so long as any member is willing to purchase the same OR any person selected by the Board of Directors as one whom it is desirable in the interests of the Company to admit to membership is likewise so willing. State Bank of Pakistan approved the transaction of transfer of shares cementing the validity of the transaction.

Petitioners Case
The High court has erred In its decision Reliance on Lal Khan v. Ghulam Muhammad (1973 SCMR 252) Halsburys Laws of England Vol.6

Respondents Case
Mr. Astbury J. in Hickman v. Kent & Romney Marsh Sheepbreeders Association (1915) observed: The Articles of Association are simply a contract as between the shareholders inter se in respect of their rights as shareholders. They are the deed of partnership by which the shareholders agree inter se. Article 40 cannot be read in isolation

Respondents Case
Article 41: The proposing transferor shall give notice in writing to the Company of his willingness to sell shares Article 42: The Company shall within 2 calendar months find a member or person willing to purchase the shares

Article 45: If the Company is unable to do so within the time prescribed, the proposing transferor shall be at libery to sell the shares

Respondents Case
Article 46: Shares specified in any notice in pursuant to Clause 41 shall be offered to members. Pre-Emptive Rights : Introduction to Law by L.H. Leigh, V.H. Joffe and D.Goldber An example of the type, a relatively common restriction on transfers, is a clause in the articles giving pre-emptive rights to other members to acquire shares of a member who desires to sell all or part of his holdings. Such restrictions are perfectly lawful

JUDGMENT

Questions

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