Real estate riddles

Corporate counsel from Kotak Investment Advisors, Larsen & Toubro and Jones Lang LaSalle shared their real estate concerns with India Business Law Journal. Six specialists analyse their problems and offer practical solutions, legal remedies and risk mitigation strategies.

Board resolutions and LLPs

Shagoofa Rashid Khan, senior vice-president & head of legal, Kotak Investment Advisors: The board of a developer-company typically consists of representatives of the promoters group and real estate fund. When the board consists of two nominees each from the promoter group and the real estate fund and if a real estate fund proposes to transfer its shares (in accordance with the investment agreement and the articles of association), would a resolution for transfer approved at a board meeting that is attended and voted upon only by the nominees of the real estate fund be regarded as invalid or could it be challenged through a petition filed under section 397-398 of the Companies Act, 1956? Would the answer be different if the developer-company is a public company?

Sumita Chauhan, partner, Mine & Young: As held by the Supreme Court in VB Rangaraj v VB Gopalkrishnan, the articles of a private company may contain provisions restricting the right to transfer of shares, but any restriction outside the articles (e.g. a private agreement between the shareholders) is inoperative and unenforceable unless the same has been specifically incorporated in the articles. A restriction that is not specified is not binding either on the company or on the shareholders. Thus, an agreement restricting the right to transfer, contrary to or inconsistent with the provisions in the articles, is not enforceable.