Title:
Reconciling Preemptive Rights with Equitable Relief: A New Direction in Share Allotment
Disputes
Subtitle:
A Review of the Supreme Court Judgment in Civil Appeal No. 149 of 2023 and its departure
from earlier High Court interpretations.
Introduction
In a recent landmark ruling in Civil Appeal No. 149 of 2023, the Appellate Division of the
Supreme Court of Bangladesh has provided new judicial guidance on how to interpret the
conditions of section 155 and the discretionary nature of equitable relief under section 43 of
the Companies Act, 1994. This ruling has major implications for company law and corporate
governance in Bangladesh since it deals with share distribution and minority shareholder
rights.
This blog aims to unpack the Appellate Division’s decision in view of the earlier caselaws.
Background of the Case
The dispute arose from a shareholder conflict at Partex Cables Limited, a company that
experienced several rounds of share allocation, resulting in the issuance of nearly 90 million
new shares. This process significantly reduced the appellant, Tabassum Kaiser's shareholding
from 10% to roughly 2.34%. She filed for rectification of the share register under Section 43
of the Companies Act, 1994, alleging that these allocations were made without her
knowledge, consent, or following the correct board procedure. The High Court Division
dismissed her company matter petition, citing her attendance at the board meeting on
08.08.2022 and her failure to object to the share allotments and corporate resolutions,
including the proposed IPO.
Supreme Court’s Key Findings
In a detailed and analytical judgment, the Appellate Division dismissed the appeal and
upheld the High Court’s decision. Its ruling rested on several core principles:
1. Section 155(2) Permits Allotment to Non-Members
The Court emphasized that Section 155(1) of the Companies Act, 1994 mandates offering
further shares to existing members in proportion to their shareholdings. However, subsection
(2) expressly permits allotment of shares to “to any person,” thereby empowering the board
to allot shares outside the existing shareholding circle as the board deems fit, provided this is
not in breach of any articles or agreements.
2. Equitable Nature of Relief under Section 43
The Court stated that rectification of the share register under Section 43 is discretionary
and equitable in nature and not a matter of right. Citing Indian precedents, including
Mukundlal Manchanda v. Prakash Roadlines Ltd. and Bellesby v. Rowland, the Court
reaffirmed that rectification of the share register under section 43 is a discretionary and
equitable remedy, and not one available ex debito justitiae. Relief can be denied if the
petitioner has failed to come with clean hands or has acted inconsistently with his or her
asserted rights.
3. Doctrine of Acquiescence and Waiver
The appellant's attendance at the board meeting on August 8, 2022, where IPO plans were
reviewed and approved, her silence during important decisions, and her subsequent failure to
object contemporaneously or offer to purchase shares proportionate to her shareholding were
all given important consideration by the court.
4. Promissory Estoppel vs Waiver: A Distinction
The appellant relied upon the case of Jamuna Television Ltd. v. Bangladesh (65 DLR (AD)
253) to argue against estoppel in statutory matters. However, the Court distinguished that
case as involving public law specifically, the relationship between a private party and the
Government of Bangladesh, concerning constitutional and regulatory obligations. In contrast,
the present dispute arose from private company affairs, the internal governance of a closely
held company under the Companies Act, 1994, particularly concerning: Share allotment,
Preemptive rights, Section 43 (rectification of register), Section 155 (further issue of capital).
The Court emphasized that doctrines like waiver, acquiescence, and estoppel do apply in
private law and equity.
Reconciling with earlier decisions and legal commentaries
The Appellate Division, while analyzing Section 155, observed that “If we read meticulously,
the above provision of law then it will be clear that in view of the provision of subsection (2),
the provision of subsection (1) of section 155… cannot be said Sine Qua Non.”. With utmost
reverence, it is submitted that the Appellate Division has missed an opportunity to correct the
drafting anomaly in Section 155 of the Companies Act, 1994. Section 155(2) of the
Companies Act, 1994 partly corresponds with Section 81(1A) of the Indian Companies Act
1956. It is interesting to note that in Section 81(1A) of the Indian Companies Act 1956, there
is a mechanism through which the new shares may be issued to any person, whether the
existing shareholders of the company or the outsiders. Thus, under the Indian Act, if the
company at a general meeting resolves that the newly issued shares can be allotted to persons
other than the equity shareholders, such decision shall be valid. Section 155(2) of the Act,
however, does not have any such mechanism. The Late Dr. M. Zahir, legendary Senior Advocate, while commenting on Section 155 of the Act 1994, observed that Section 155(2)
“negates the entire effect of” Section 155(1) and termed this law “doubtful.” (See Dr. M
Zahir, Company and Securities Law at page 148, para. 12.16, Third edition, 2015, The
University Press Limited). Also, in the case of Dr. Monjurul Islam v. Al-Rajhi Hospital
(Pvt.) Ltd. & ors (2004) 1 Law Guardian (HCD) 46, same conclusion was reached about
Section 155(2) of the Companies Act 1994 when the High Court observed that – “A plain
reading of the ……. provision shows that the rights of a member of a company as given in
subsection 1 has been withdrawn in subsection 2. Sub-section 2 made the obligation of the
company to offer its further shares to its members unless declined, virtually meaningless
when the said provision authorizes offer of further shares to any person and not restricted to
the members of the company as stipulated under clause (a) to sub-section 1.” It is submitted
that in light these observations in earlier decisions and established legal commentaries, the
Appellate Division has missed an opportunity to correct the glaring mistake in Section 155.
Implications for Corporate Governance
This judgment established that:
Written by Managing Partner Junayed Ahmed Chowdhury and Consultant Safayet Rohan
Mahmud.
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