A Kuwaiti court ruled void Zain's April annual shareholders meeting, upholding a case brought by a former board member who opposed the election process, but the ruling will not impact the sale of Zain's Saudi stake, a company source said.

A lawyer for Sheikh Khalifa Ali al-Khalifa al-Sabah, who was not re-elected in April, said on Sunday the decision was a first degree ruling.

In April, Zain elected a new board including a top executive from Kuwait's family conglomerate Kharafi Group, and approved a $3 billion dividend for 2010.

The dividend has already been distributed. The court case centers on the manner in which the new board was elected.

A Zain company source, speaking on condition of anonymity, told Reuters that the firm will appeal the ruling.

'The ruling shocked the board ... but the company will appeal immediately,' the source said.

A Zain spokesman declined to comment, saying it was an issue between a shareholder and the board.

Last year, Sheikh Khalifa filed a lawsuit to halt the due diligence in a $12 billion deal to sell a 46-percent stake in Zain to the UAE's Etisalat . The deal fell apart in March after Etisalat walked away.

A sideline of the failed Etisalat deal was to sell Zain's 25-percent stake in Zain Saudi and the ruling will not affect that, the company source said.

Zain plans to sell its stake in indebted affiliate Zain Saudi to joint bidders Kingdom Holding and Bahrain Telecommunications.

Zain's shares closed down 1 percent on the Kuwaiti bourse on Sunday after the ruling. – Reuters