A company is governed by its Article of Association. Article of Association is a document governed by the Companies Act, 2013, containing provisions for internal regulation which are to be adhered to by the Shareholders, directors and members of the company. Whereas a Shareholder Agreement is a type of contract bound by the Indian Contract Act, 1872 laying down certain duties, right and obligations of the shareholders.
Quite often the provisions of the Article of Association and Shareholder Agreement are conflicting which makes it difficult to decide whether to rely on the Article of Association or the Shareholder Agreement. It was the V.B. Rangaraj v. V.B. Gopalakrishnan and others case that clarified the position in cases of conflict between a company’s Shareholder agreement and Articles of Association concerning limitation on shares transferability.