The main legal point established is that the transfer of shares under a scheme of amalgamation is considered a transmission of shares under Article 39 of the Companies Act, 1956, and is not covered by the pre-emption clause.

The company appeal impugns an order of the Company Law Board, Mumbai Bench (“CLB”) allowing the petition of the first Respondent, under Section 111 of the Companies Act, 1956 (“Act”), declaring it to be the owner of 1980 shares of the Petitioner company and directing the latter to rectify the register of members accordingly.

2. The facts of the case may be briefly stated, as follows :

One Jayalaxmi Holdings Pvt. Ltd. (“JHPL”) held 1980 shares of the Appellant company (“subject shares”). In pursuance of a scheme of amalgamation sanctioned by this Court, all assets and liabilities of JHPL were transferred to the first Respondent. The assets included the subject shares. The first Respondent, thereafter, applied for registration of such transfer and inclusion of its name in the register of members. The Appellant rejected the application on the ground that the transfer of shares was in breach of the relevant Articles of Association providing for a right of pre-emption. This rejection was challenged by the first Respondent before the CLB under Section 111 of the Act. The CLB allowed the petition and directed rectification of the register.

3. Learned Counsel for the Appellants submits that the CLB has erred in law by treating the transfer of shares under the scheme of amalgamation as a case of transmission by operation of law, whereas transfer of assets by a scheme of amalgamation is considered as a voluntary transfer between the transferor and transferee companies. He relies on the Articles of Association of the Appellant company and contends that all voluntary transfers come within the pre-emption clause of the Articles. Learned Counsel submits that the subject transfer was in breach of these Articles and was, thus, rightly rejected by the Appellant company.

4. Articles 21 to 43 of the Articles of Association of the Appellant provide for transfer and transmission of shares. Article 22 restricts transfers of shares except after exhaustion of rights of pre-emption provided in Articles 23 to 38 which follow. Article 39 provides for a 'transmission clause', where a person becomes entitled to shares other than by transfer in accordance with the foregoing Articles. In case of a transmission, the Articles providing for rights of pre-emption do not apply. The controversy between the parties really involves the nature of the transaction as between JHPL and the first Respondent under the sanctioned scheme of amalgamation. Does it amount to 'transfer of shares' or is it equivalent to 'transmission of shares', within the meaning of the Articles of the Appellant. For if it is 'transfer', then alone the pre-emption clause would apply and not otherwise.

5. The relevant Articles concerning 'transfer of shares' are quoted below:

“(22) Except as hereinafter provided, no shares in the Company shall be transferred unless and until the rights of preemption hereinafter conferred shall have been exhausted.

(23) Except where the transfer is made pursuant to article 29 or Article 38 hereto, the person proposing to transfer any share (hereinafter called “the Proposing Transferor”) shall give notice in writing (hereinafter called “a Transfer Notice”) to the Company, that he desires to transfer the same. Such notice shall specify the sum he fixes as the fair value and shall constitute the Board of Directors his agent for the sale of the share to any member of the Company or person approved of selected by the Board of Directors who is willing to purchase the share (hereinafter called “the Purchasing Member”) at the price so fixed, or at the option of the Purchasing Member at the fair value to be fixed by the Auditors of the Company in accordance with Article 25 hereof. A Transfer Notice may include several shares and in such cases shall operate as if it were a separate notice in respect of each. A transfer Notice shall not be revocable except with the sanction of the Directors.

(24) If the Company shall within the space of 28 days after being served with a T