V.B. Rangaraj v. V.B. Gopalakrishnan & Ors.

Quick Summary

Shareholders made a side pact to keep equal shares within two family branches and to sell only within the branch first. The Articles did not carry these limits. The Supreme Court said: a restriction on transfer binds only if it is in the Articles. A private pact that adds extra limits is not enforceable against the company or members.

• PRIMARY_KEYWORDS: Articles vs Shareholders’ Agreement
• SECONDARY_KEYWORDS: share transfer, company law, corporate governance
• PUBLISH_DATE: 23-10-2025
• AUTHOR_NAME: Gulzar Hashmi
• LOCATION: India

Issues

1. Can shareholders agree among themselves on transfer limits that are inconsistent with the Articles of Association?

Rules

• Binding nature: Any restriction on a member’s right to transfer shares must be found in the Articles. Extra-contractual limits in a private agreement are not binding on the company or shareholders.

Facts (Timeline)

Shareholding: Joint family held 13 shares; outsiders had 37. Family later acquired all 37.

Branches: Brothers Baluswamy & Guruviah Naidu—each holding 25 shares.

1951 (Oral pact): Each branch to hold equal shares; first right to buy within the same branch before any sale outside.

1963 & 1970: Deaths of Baluswamy and Guruviah respectively.

Breach alleged: One son of Baluswamy sold shares to a son from Guruviah’s branch, contrary to the pact.

Dispute: Whether this private restriction binds the company/members when the Articles are silent.

Arguments

Judgment

The Supreme Court held that the private agreement imposed additional restrictions not found in the Articles—(i) sale only to existing members and (ii) only within the same branch. Such limits are inconsistent with the Articles and are not binding on the company or the shareholders.

Ratio (Key Rule)

Restrictions on transfer of shares must be expressly stated in the Articles of Association. A shareholders’ agreement that adds new limits, or conflicts with the Articles, is not enforceable against the company or members.

Why It Matters

• Confirms primacy of Articles in corporate governance.
• Guides drafting: put pre-emption/lock-in clauses in the Articles.
• Protects free transferability unless Articles validly restrict.

Key Takeaways

• Articles govern; side pacts cannot override.
• Transfer limits must be in the Articles to bind the company.
• Family arrangements ≠ corporate rules unless adopted into Articles.

Mnemonic + 3-Step Hook

Mnemonic: “WRITE IT RIGHT—IN ARTICLES.”

1. Write: Put the restriction in the Articles.
2. Adopt: Ensure no conflict with existing clauses.
3. Bind: Only then does it bind the company and members.

IRAC Outline

Glossary

Articles of Association

The company’s internal rulebook that binds the company and its members.

Pre-emption Right

A first right to buy shares before they are offered to others.

Transfer Restriction

A limit on selling shares; valid only if stated in the Articles (subject to law).

FAQs

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